Integrated Report€¦ · Integrated Report 2019 Editorial Policy Since the release of its Environmental Report for fiscal 1999, the Kagome Group has continuously reported to our

2019

Integrated Report

Kagom

e Co., Ltd.

Integrated Report 2019

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ContentsKagome Co., Ltd.Integrated Report 2019

Editorial Policy

Since the release of its Environmental

Report for fiscal 1999, the Kagome Group

has cont inuous ly repor ted to our

stakeholders on our efforts toward making

a soc ia l cont r ibut ion th rough our

businesses by means of the Sustainability

Report (CSR report) and Kagome Story

(company brochure). This Integrated

Report is issued to create new opportunity

f o r d i s c u s s i o n b y i n f o r m i n g o u r

stakeholders, in particular shareholders

and investors, about Kagome’s mid- to

long-term efforts for enhancing corporate

value. For details of the financial data and

CSR act iv i t ies not included in th is

document, please refer to our website.

Website

https://www.kagome.co.jp/company/

Target Period

This document covers the period from

January 1, 2018 to December 31, 2018.

However, some portions of this document

contain matters related to activities outside

this defined period. The scope of this

document covers the activities of Kagome

Co., Ltd. and its consolidated subsidiaries,

but there are items that only pertain to

Kagome Co., Ltd.

Referenced Guidelines

This Report is prepared with reference to

the International Integrated Reporting

Framework issued by the International

Integrated Reporting Council (IIRC) and

the Guidance for Collaborative Value

Creation issued by Japan’s Ministry of

Economy, Trade and Industry (METI).

Moreover, our CSR activities are reported

on our website, and highlights are

included in the ESG section of this report.

Notes regarding forecasted information

The information in this report includes

forward-looking statements. These

statements are made on the basis of

assumptions and judgments based on

information available at the time of pub-

lication, hence they may contain risks

and uncertainties. Accordingly, please

be advised that the actual results may

differ from such statements due to vari-

ous changes.

Feature StoryStories Aimed at Growth Kagome’s Capabilities for Achieving Sustainable Growth

Planning capability created by human resources × systems

Development capability created by human resources × systems

Procurement capability created by human resources × systems

Production capability created by human resources × systems

Kagome’s Challenges

02

04

06

08

09

10

Outline of KagomeKagome’s History of Creating Value

Kagome’s Strength Vertical integration business model

Kagome’s Revenue Structure

Key Financial and Non-Financial Data

12

14

15

16

Kagome’s Vision and Growth StrategiesValue Creation Process

Recognizing External Conditions, Risks and Opportunities

Important issues (materiality) of Kagome

Kagome’s Vision and Growth Strategies

Review of First Mid-Term Management Plan 2016-2018

Outline of the Second Mid-Term Management Plan 2019-2021

Domestic Processed Food Business

Domestic Agri-Business

International Business

Innovation (Research)

Product Safety and Security Fulfilling our Brand Promise

Approach to Environmental Preservation Protecting water, soil and air that nurture vegetables

Sustainable Procurement Bolstering our foundation for manufacturing products, starting from the fields

Human Resources Underpinning the Creation of Value Work Style Reforms and Diversity

Collaborating with Communities Resolving social issues through food

24

26

28

30

32

34

36

38

40

42

44

46

48

49

51

Kagome’s ManagementDirectors

Suggestions from External Directors

Corporate Governance

Compliance

Initiatives to Strengthen Internal Control

Our Responsibility to Shareholders and Investors

52

54

56

62

63

65

Financial Performance/Company InformationYoshihide Watanabe Director & Senior Managing Executive Officer

Reform earnings structure and aim for healthy growth: Stronger sales naturally come with better profits

Operating Results and Financial Analysis (Fiscal Year 2018)

Consolidated Financial Statements

Company Information

66

70

73

76

President’s CommitmentNaoyuki Terada, President and Representative Director

Becoming a strong company capable of sustainable growth by transforming into a “vegetable company”

18

To become a “strong company” capable of sustainable growth, using food as a means of resolving social issues

Longer, healthier lives

Transform from a “tomato company” to a “vegetable company”

50% of the workforce consisting of women – from employees to executive officers

To become a unique entity that deals with vegetables across a variety of food ingredients, categories, temperature zones, containers, and volumes

To become a company that provides not only products but services as well, by expanding its business concept from tomatoes to vegetables

To promote business activities incorporating a wide range of views, catering to diverse consumer needs To become a strong company where employees of any gender can work enthusiastically, thus achieving high productivity

Agricultural development and regional revitalization Global food problems

In the domestic processed foods business, we aim to help people live longer, healthier lives by increasing the provision of vegetables.

In the domestic agri-business, we support agricultural development and regional revitalization through the development of vegetable production areas and processing locations.

In the international business, we work to tackle global food problems through a global, vertically integrated tomato business model.

By 2025 By around 2040

AppreciationWe are thankful for nature’s bounty and for human relat ionships. We respect natural ecosystems and value human sensibility.

NatureThrough nature’s bounty, we endeavor to create rich value that is ahead of the times and to contribute to consumers’ health and wellbeing.

Corporate OpennessWe aim to be an open company that engages in fair and transparent corporate activities and respects each person’s individuality and abilities.

Nature To strive for healthier food that makes the most of the ant ioxidants and immunological capabilities of nature’s bounty.

To produce healthy, great tasting foods without relying on unnatural additives and technologies.

Create new demand for delicious food, paying attention to the needs of our bodies and our planet.

rue to nature, the flavor of

Social issues we seek to address

What Kagome strives for by 2025

Long-term Vision

Corporate Philosophy Brand StatementAn inherited management spirit that pervades

through the changing timesOur promise to society and our customers

True

Flavor

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1KAGOME INTEGRATED REPORT 2019

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Planningcapability

Inventing products that lead the vegetable beverage and vegetable

ingredients markets

Development capability

Creating products underpinned by vegetable-related

knowledge and technologies

Procurement capability

Ensuring crop volumes, types and quality of vegetable raw

ingredients

Production capability

Increasing efficiency in profit generation at the production

workplace, without undermining safety and peace of mind for

consumers

Kagome’s product capabilities: human resources × systemsKagome is currently working to drive

the evolution of its competence as

a “vegetable company,” around the

core of the tomato variety develop-

ment and processing technologies

that it has developed since the time

of its initial founding. These efforts

represent our unique value creation

model that is created by the interplay

of diverse human resources and pro-

duction systems ensuring consistent,

high quality in a short period of time.


To become a “strong company” capable of

sustainable growth, using food as a means of resolving

social issues

Long-term Vision

トマトの会社から野菜の会社になる


Social issues that Kagome is working

to address

Global food problems

Agricultural development and regional revitalization


1

2

3

4

Planningcapability

Inventing products that lead the vegetable beverage and vegetable

ingredients markets


Creating products underpinned by vegetable-related

knowledge and technologies


Ensuring crop volumes, types and quality of vegetable raw

ingredients


Increasing efficiency in profit generation at the production

workplace, without undermining safety and peace of mind for

consumers

Kagome’s product capabilities: human resources × systemsKagome is currently working to drive

the evolution of its competence as

a “vegetable company,” around the

core of the tomato variety develop-

ment and processing technologies

that it has developed since the time

of its initial founding. These efforts

represent our unique value creation

model that is created by the interplay

of diverse human resources and pro-

duction systems ensuring consistent,

high quality in a short period of time.


To become a “strong company” capable of

sustainable growth, using food as a means of resolving

social issues

Long-term Vision

トマトの会社から野菜の会社になる


Social issues that Kagome is working

to address




1

2

3

4

Feature Story

Kagome’s Capabilities for Achieving Sustainable GrowthKagome has established the long-term vision of transforming from a “tomato company” to a “vegetable company” by 2025. By supplying not only tomatoes but a diverse range of other vegetables in various forms, we hope to contribute to longer, healthier lives by increasing vegetable consumption. Here we introduce Kagome’s capabilities for creating sustainable value through the human resources and systems that Kagome has built up through the planning, development, procurement and production of vegetable beverages that it has created so far.

Stories Aimed at Growth

Feature Story

32 KAGOME INTEGRATED REPORT 2019KAGOME INTEGRATED REPORT 2019

Outline of K

agome

Financial Performance/Com

pany Information

President’s C

omm

itment

Kagom

e’s Managem

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agome’s Vision and G

rowth Strategies

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Feature Story

created by human resources × systems

Product planning creates demand

by giving shape to dietary lifestyle

needs

In July 2014, we released the first Yasai Seikatsu 100 Smoothie in a chilled cup package, as a new variation of the Yasai Seikatsu 100 series. At the time, other companies’ cup beverages were performing strongly, and many consumers had needs for cup-type beverages with enough volume to satisfy their appetite when they were feeling a little hungry. Smoothies were also beginning to establish their popularity in the beverage market, and Kagome’s

chilled cup beverage also received a positive response, particularly from young female consumers. In fall 2015, we launched an additional two items in the 330ml carton package with a cap to respond to demand for a beverage that could be sipped and consumed over several sittings in order to satisfy light hunger at the office, or when out elsewhere. Since 2015, Yasai Seikatsu 100 Smoothie has contributed to expanding Kagome’s sales of vegetable beverages by creating new demand for healthy snacks between meals.

Creating a thick consistency, without using additives

The most distinctive feature of smoothies is their thick texture. Although thickeners are typically used to give liquids this kind of thick consistency, Kagome’s smoothies contain no thickening agents whatsoever. “At Kagome, our uncompromising approach in creating our products is to make use of natural ingredients, and to avoid using additives wherever possible.” (Nishizaki) Yasai Seikatsu 100 Smoothie achieves the desired texture, consistency and drinking sensation for consumers through a complex blend of vegetables, fruits and plant-derived dietary fibers, based on insights gained through Kagome’s past development of vegetable beverages. “Because we are using natural ingredients, in some cases, our uncompromising attitude towards not using additives can place constraints on our product planning. For example, depending on the combination of raw ingredients used, the balance may be disrupted. However, working in collaboration with our development division—with its intimate knowledge of vegetables and fruits—and making inventive use of raw materials and manufacturing methods while referring to examples of blends accumulated so far enables us to achieve the creation of delicious additive-free products.” (Morimoto)

Creating unconventional products by pursuing unique possibilities of smoothies

In addition to vegetables and fruits, Kagome’s

smoothies make use of other raw ingredients currently drawing attention, including soy milk, almond milk, yogurt and amazake sweet and thick beverage. “We come up with new product concepts by analyzing and researching where opportunities and issues exist through combination of market and specialty store trends and Kagome’s resources, strengths and weaknesses.” (Nishizaki) Yasai Seikatsu 100 Smoothie has also attracted customers with no past experience of consuming vegetable drinks. “I think people have felt that this product is in style and worth snacking to satisfy their hunger. Smoothies allow us to deliver a complex blend of ingredients and to take an aggressive approach by making relatively easy use of currently trendy ingredients.” (Morimoto) In contrast with long-selling products such as Kagome Tomato Juice and Yasai Seikatsu 100, Yasai Seikatsu 100 Smoothie uncovers new demand.

Yasai Seikatsu 100 Smoothie caters to the “healthy snacks” needs of working women and the demand for light meals as a substitute for salads and soups for lunch. In this way, it has created unique value in satisfying light hunger cravings, unlike existing vegetable beverages. Looking ahead, Kagome will seek to widen its base of demand by launching new products utilizing limited seasonal fruits and topical ingredients aimed at various generations of consumers, based on the keywords of “healthy snacking × leisurely sipping.”

Creating the unique value of satisfying

light hunger cravings

Flexible and imaginative thinking of young employees, and sensitivity to catch market trends

Planning capability to create “additive-free” products in collaboration with the development division

Kagome’s key strengths in product planning

Planning Story

Yasai Seikatsu 100 Smoothie

Planning capability

A mix of vegetables and fruits, Yasai Seikatsu 100 Smoothie features natural sweetness and satisfying fillingness with no sugar, sweeteners or thickeners.

Kagome personnel

Kagome personnel

Tatsuto NishizakiBeverage Planning Department,

Marketing Division(joined Kagome in 2006)

Risa MorimotoBeverage Planning Department,

Marketing Division(joined Kagome in 2014)

Kagome’s products are made from vegetables, fruits and

other natural ingredients. To make the most of these

ingredients, we are committed to offering our products

with the least amount of additives possible. Kagome’s

product planning stays true to this commitment, and

invests energy into the creation of delicious products that

fit dietary trends and the needs of consumers.

A beverage born out of the need for a filling drink-snack

Feature Story


Outline of K

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Feature Story

Development draws out the inherent flavor

and possibilities of vegetables and

gives shape to value supplied

The development division considers practical aspects of

product concepts created by the product planning division,

from the selection of raw ingredients and blending ratios to

processing methods and containers. Products are then

manufactured by the production division. The technique for

utilizing diverse combinations of vegetables and fruits and

unlocking the potential of these raw ingredients is a

sustainable competitive advantage developed by Kagome

for more than 100 years.

Development Story

GREENS

A premium smoothie that delivers the ingredients as they are, 100% additive-free, with no added preservatives, colorings or flavorings. The application of Kagome’s proprietary “cold coarse-straining production method” draws out the color, fragrance and texture of vegetables and fruits, resulting in a beverage with three times the dietary fiber and six times the amount of vitamin C from the ingredients in comparison with conventional production methods. Keep refrigerated.

created by human resources × systems

“We began by considering how ‘fresh’ we could make our Tomato Juice and Yasai Seikatsu 100 products. However, this would not enable us to break away from the domain of our existing product lines. So we changed our way of thinking and decided to create a range of juice products that utilized the delicious flavor and texture of fresh vegetables as they are.” (Matsuzaki) Through discussions with other relevant departments, we concluded that the essential elements of “freshness” that consumers require from vegetables are bright color, fragrance and texture. One raw ingredient that we focused our attention on as being able to achieve this was komatsuna (Japanese mustard spinach), which is often used as an ingredient at fresh juice bars.

While putting juice into bottles and selling it as a storable product requires sterilization through the application of heat or other methods, komatsuna was not well suited to use as processed food, due to issues such as color change and odors released upon heating. The development team created numerous prototypes at a test plant and accumulated various insights as they searched for optimal conditions for sterilization by heating that would maintain the original color and fragrance and allow consumers to enjoy the freshness of the ingredient. They also worked to find ways of cutting that would give a texture similar to that of biting into fresh vegetables, and cut the solid vegetables in complex shapes. In order to show that this beverage was created using completely new production methods, the developers came up with the name “cold coarse-straining production method,” and sought to clearly set the product apart from others by displaying this name on the packaging. “When setting sterilization conditions, we referred to materials such as past research reports on the development of vegetable juices. We have also stored the knowledge and insights gained through the development of GREENS in database form. I think the fact that we have a system for utilizing the assets gained through these attempts in future developments is also one of Kagome’s key advantages.” (Matsuzaki)

A drinking experience achieved through an intimate knowledge of the characteristics of vegetables

Updating the product to match consumer needs

We are continually renewing and updating the GREENS range based on the results of numerous consumer surveys. In 2017, when converting all products in the series into smoothies based on the strong performance of the Yasai Seikatsu 100 Smoothie, we also reviewed and updated their choice of ingredients. “Typically, banana puree is used to add viscosity and give smoothies their thick consistency. At Kagome, we use different ingredients to add viscosity to each product, in order to match the flavor of the main fruits contained in that product.” (Naganawa) We also used various creative ideas such as changing the method used to wash the containers before use, and in 2018 succeeded in extending the best before date for GREENS products from the initial period of around two weeks to three weeks. GREENS has now grown into a standard choice product in luxury supermarkets, department stores and mass-retailers throughout Japan.

Launched in September 2015, GREENS was developed with the aim of delivering a vegetable beverage that allows consumers to feel the freshness of the ingredients and enjoy a drinking experience that feels almost like eating fresh vegetables; in response to the increase in consumer needs to consume fresh—almost “raw”—vegetables, in view of popular trends such as those of handmade smoothies and juice bars.

Kagome has some products that use independently-devel-oped ingredients. For example, a technique in which tomato juice i s f r a c t i o n a t e d through centrifuga-

tion and separated into supernatant liquid and fibers is already utilized in the production of other products. This technique finds various applications, such as in using the supernatant to create smooth-textured products, or adding the fibers in order to give a natu-ral viscosity to other products. We are currently also researching the fractionation of carrot juice, and are working on a proprietary technology for improving the flavor of onions. In this way, we are advancing the development of various ingredients for achieving our vision of becoming a “vegetable company.”

Ingredient development to achieve Kagome’s vision of becoming a “vegetable company”

Kohei Danzuka, Material Resource Development Department, Innovation Division

Kagome’s key strengths in product development

Knowledge of processing techniques and bacteria control methods accumulated through past

development of beverage drinks Development of vegetable ingredients unique to Kagome

Blending capability of ensuring a targeted �avor and viscosity development through the

combination of multiple vegetables and fruits


Kagome personnel

Kazuki Naganawa Product Development Department,

Solution Sales Division(joined Kagome in 2009)

Kagome personnel

Masahiro Matsuzaki Product Development Department,

Solution Sales Division (joined Kagome in 2006)

The challenge of developing a vegetable beverage that allows consumers to feel the “freshness” of processed food products

(joined Kagome in 2008)

Feature Story


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Feature Story

Procurement capability to secure a stable supply of over 600,000 tons of vegetables through systems such as dispersed cultivation areas and assessment of raw ingredients

Plants supplying products that offer safety and

peace of mind, and working to reduce costs

Kagome is enhancing its global procurement network in order to ensure a stable supply of products produced by combining natural ingredients. We have created a system in cooperation with our overseas suppliers for producing tomatoes with the desired quality and flavor. For other vegetables and fruit juices, too, we ensure constant quality and flavor by using a combination of tomatoes from different cultivation areas.

The volume of vegetables supplied by Kagome is increasing year by year. In fiscal year 2017, this volume increased by 33,000 tons from the previous year, to 616,000 tons.

The conventional hot packing sterilizes the bottle and cap by filling the bottle with heated liquid. In contrast with this, the aseptic filling method pasteurizes the liquid by heating it at a high temperature in a short time and cools it right after the pasteurization to fill the bottle at room temperature. All stages of the process from bottle molding to filling and capping are carried out under aseptic conditions.

Kagome’s Nasu Plant manufactures beverages packaged in cans, PET plastic bottles and paper packs. In April 2019, the plant

commenced operation of an aseptic plastic bottle filling line, expanding Kagome’s production capacity to 1.3 times the previous

level. This has enabled Kagome to enhance its supply network, reduce costs, and expand its range of product varieties.

How Kagome procures a stable supply of high-quality raw ingredients Supplying 616,000 tons of vegetables

What is aseptic filling?

Yearly volume of vegetables supplied by Kagome and percentage Kagome accounts for out of the total volume of vegetables consumed in Japan

2015 2016 2017 (Year)

566,000 t(4.0%)

583,000 t(4.3%)

616,000 t(4.4%)

Kagome has installed a new production line at its Nasu Plant (its main beverage production plant) with a view to consolidating its domestic production locations for beverages bottled in plastic bottles. In this way, we are working to improve production capacity and reduce costs. Behind the introduction is our intention to absorb the impact of risks such as the soaring cost of overseas-produced raw materials and ingredients, and avoid the risk of fluctuating product demand to drive down the rate of food loss. In comparison with Kagome’s previous filling method, this new aseptic filling line enables faster sterilization, and retains the original flavor and aroma of the ingredients. Because we mold our own plastic bottles, this method reduces the unit cost of containers significantly and helps to cut CO2 emissions during transportation. Furthermore, this method has also made possible the production of products in the neutral pH range, unlike the traditional filling method. This has allowed us to ramp up our range of product varieties towards realizing our vision of a “vegetable company.”

Potential benefits from the introduction of the aseptic bottle filling line

Many of Kagome’s purchasing personnel have experience working in factories, and have valuable insights with regard to manufacturing and quality control. In our procurement assessments, we think from the perspective of factories that will be using the raw ingredients, and assess procured products in terms of their quality and costs as well as processability and manageability, based on our own experience. The procurement side and the factory side share the passion for safe, high-quality products. In addition to delivering assured quality ingredients, we are also enhancing our collaborative ties with suppliers and sharing information on needs and risks, in order to increase the quality of our products through the application of human resources × systems.

In the introduction of the aseptic filling line, as project manager for the Production Department, I made repeated adjustments to increase produc-tion capacity, while at the same time incorporat-ing the needs of the Product Development De-partment and various other departments. We also incorporated measures against personnel short-ages into the design process, and minimized per-sonnel requirements by installing the line with a highly work-efficient layout and monitoring sys-tems. It was a valuable experience to be involved in such a large-scale project that was a focus of the company’s hopes and expectations.

Experience in factory work comes in useful for procurement duties

Reflecting cost-reducing measures and the needs of each department in the

design process

Approaching Kagome’s vision of becoming a “vegetable company” in the field of vegetable beverages with the introduction of Japan’s first aseptic plastic bottle filling line

Partial list of procured vegetables and products in which they are used

approx. 440,000 tons

Tomatoes

approx. 150,000 tons

Carrots

approx. 6,000 tons

Onions

approx. 2,000 tons

Red peppers

Feature Story

Kagome has around 20 procurement locations in ten countries around the world for procuring tomatoes for processing. During the growing season, Kagome employees visit the plantations and factories to conduct quality checks and give guidance to ensure quality in cooperation with local suppliers. To handle climate change risks, which go hand in hand with reliance on natural farm-produced ingredients, we diversify cultivation areas into northern and southern hemispheres and acquire more new procurement locations. In doing so, we perform ingredient assessments and audits at new procurement locations, and only engage in business with suppliers that meet Kagome’s required standards. Even for the same vegetables, flavor differs depending on the production region. Kagome quantifies how much vegetable from each production area can be used in each product. In this way, Kagome’s Purchasing and Development Departments have built a system that enables the blend of ingredients to be adjusted to ensure the same flavor for each product.

Source: Calculated based on the Food Balance Sheet (confirmed values for fiscal 2016 and estimates for fiscal 2017) compiled by the Ministry of Agriculture, Forestry and Fisheries (MAFF)Volumes supplied by Kagome are calculated based on actual 2017 sales results.

created by human resources × systems created by human resources × systemsProcurement capability

Productioncapability

Kagome personnel

Yutaka Yoshida Purchasing Department, Production

& Purchasing Division(joined Kagome in 2013)

(1) Contribution to business growth ▶Approx. 1.3 times higher production capacity ▶ Expansion of range of product varieties

Enables production of beverage in the neutral pH range(2) Contribution to cost reductionLower costs through in-house plastic bottle production and workforce minimization

Kagome personnel

Takahito Hamamiya Production Technology Department, Production & Purchasing Division

(joined Kagome in 2007)

Feature Story


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Volume of green and yellow vegetables supplied in Japan

17.2% (fiscal 2016)

20%

Revenue

250 billion yen

Core operating income

20 billion yen

Volume of vegetables consumed in Japan277 g (fiscal 2016)

Reached 350 g

Transforming from a “tomato

company” into a “vegetable company”

Food education

Health services

Food-related events

Farming experiences

Services utilizing brands and know-how

Spread of social impact

by 2025

1Planning capability




2

3

4

Competitive products

Growth through both products and services (based around a core of products)

Heath-related content

Value offered MarketsDelivery formats

New added value offered

Vegetable solutions capability

Vegetable demand-creation capability

Accumulating and refining extensive vegetable-related knowledge and technical skills

Product safety and peace of mind

Flavor

Good for health

Brand● Home

cooking

● Home meal replacement

● Eating out

● Vegetable beverages

● Fresh vegetables

● Frozen vegetables

● Vegetable soups

● Vegetable stock

● Supplements

Vege

tabl

e-ba

sed

dish

es

● Industrial use

● Kagome direct marketing

● Health services

Value provided MarketsDelivery formats

The value and

delicious flavor of

tomatoes and other

vegetables

● Tomato and vegetable producers

● Industrial use

● Eating out

● Home cooking

● Tomato and vegetable seeds and nursery stock

● Cultivation of tomatoes for processing

● Primary processed items (tomato paste, etc.)

● Secondary processed items (tomato sauce, etc.)


Becoming a “Vegetable Company” to Realize “What Kagome Strives for”

Kagome will provide a diverse range of vegetables in different formats to a wide range of markets through various processing methods, thereby enhancing its proposals for consuming vegetable-based dishes. This requires capabilities for delivering vegetable solutions and creating demand. By refining the extensive range of vegetable-related knowledge and technical skills that we have accumulated and changing ourselves, we will continue to greatly expand the range of areas in which we can contribute to resolving social issues and to engage in new challenges.

In order to fulfill its 2025 Vision to “become a ‘strong company’ capable of sustainable growth, using food as a means of resolving social issues,” it is necessary for Kagome to transform from a “tomato company” into a “vegetable company.”

Through the vertically integrated business model of tomatoes for processing, in which it engages in all stages of the business from seeds to secondary processing, Kagome facilitates healthy dietary lifestyles in the countries and regions where it operates, and contributes to resolving global food shortages and other food problems. We will also create new demand by conducting B-to-C vegetable beverage business operations in Asia, and developing and introducing exclusive products to match local tastes.

Domestic Business


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Volume of green and yellow vegetables supplied in Japan

17.2% (fiscal 2016)

20%

Revenue

250 billion yen


20 billion yen

Volume of vegetables consumed in Japan277 g (fiscal 2016)

Reached 350 g

Transforming from a “tomato

company” into a “vegetable company”

Food education

Health services

Food-related events

Farming experiences

Services utilizing brands and know-how

Spread of social impact

by 2025

1Planning capability




2

3

4

Competitive products

Growth through both products and services (based around a core of products)

Heath-related content

Value offered MarketsDelivery formats

New added value offered

Vegetable solutions capability

Vegetable demand-creation capability

Accumulating and refining extensive vegetable-related knowledge and technical skills

Product safety and peace of mind

Flavor

Good for health

Brand● Home

cooking

● Home meal replacement

● Eating out


● Fresh vegetables

● Frozen vegetables

● Vegetable soups

● Vegetable stock

● Supplements

Vege

tabl

e-ba

sed

dish

es

● Industrial use

● Kagome direct marketing

● Health services

Value provided MarketsDelivery formats

The value and

delicious flavor of

tomatoes and other

vegetables

● Tomato and vegetable producers

● Industrial use

● Eating out

● Home cooking

● Tomato and vegetable seeds and nursery stock

● Cultivation of tomatoes for processing

● Primary processed items (tomato paste, etc.)

● Secondary processed items (tomato sauce, etc.)


Becoming a “Vegetable Company” to Realize “What Kagome Strives for”

Kagome will provide a diverse range of vegetables in different formats to a wide range of markets through various processing methods, thereby enhancing its proposals for consuming vegetable-based dishes. This requires capabilities for delivering vegetable solutions and creating demand. By refining the extensive range of vegetable-related knowledge and technical skills that we have accumulated and changing ourselves, we will continue to greatly expand the range of areas in which we can contribute to resolving social issues and to engage in new challenges.

In order to fulfill its 2025 Vision to “become a ‘strong company’ capable of sustainable growth, using food as a means of resolving social issues,” it is necessary for Kagome to transform from a “tomato company” into a “vegetable company.”

Through the vertically integrated business model of tomatoes for processing, in which it engages in all stages of the business from seeds to secondary processing, Kagome facilitates healthy dietary lifestyles in the countries and regions where it operates, and contributes to resolving global food shortages and other food problems. We will also create new demand by conducting B-to-C vegetable beverage business operations in Asia, and developing and introducing exclusive products to match local tastes.

Domestic Business


091_0116687911906.indd すべてのページ 2019/08/29 14:06:59

Feature Story

Kagome’s Challenges

A scenario for growth with scalability, based on product powerMoving forward, products created through the application of human resources × systems will continue to play a core role in Kagome’s future growth. With this product power as its base, Kagome will accelerate its progress towards the realization of what Kagome strives for by becoming a company that offers not only products but also services, such as health services and food education, utilizing our brands and know-how developed so far.

Feature Story


Outline of K

agome


pany Information

President’s C

omm

itment

Kagom

e’s Managem

entK


rowth Strategies

m_pdf_010_0116687911906.indd 10-11 2019/09/02 16:59:05

Outline of Kagome

Kagome’s History of Creating ValueKagome was founded in 1899. Since then, we have instilled our founding sentiment of wanting to “contribute to people’s health by leveraging the value of agricultural products, which are part of nature’s bounty” into our products, and continued to deliver them to consumers. The history of food and the history of Kagome itself are intimately linked, and we have continued to create the value demanded by society in various eras. We could not have created that value or woven that history by ourselves alone. “Appreciation” is one aspect of our corporate philosophy, and a sentiment of gratitude towards nature’s bounty and the many

people whom we have encountered along the way. It is because we have maintained this philosophy and achieved harmonious co-existence with society that we have been able to create a history of over 120 years. Our spirit of collaboration and mutual support remains unchanged throughout the ages, and is still alive today in the implementation of Kagome’s corporate philosophy. Moving forward, Kagome will continue to value dialogues with society and work to identify those that must change and those that must remain the same, as it aims to achieve further growth.


Meiji period (1868-1912)

Taisho period

(1912-1926) Showa period (1926-1989) Heisei period (1989-2019)

1899 1903 1906 1908 1933 1963 1966 1967 1972 1978 1983 1992 1995 1998 2000 2001 2003 2004 2005 2006 2010 20141988

Established Taiwan Kagome Co., Ltd.The first business

expansion overseas

1952

Built a production plant in Nishiyashiki, Araomachi,

Tokai City in Aichi Prefecture, and entered full-scale

production of tomato sauce

Present day

Posted net sales of

3 billion yen (1960)

Posted net sales of


Posted net sales of


Posted net sales of


Meat-based diet (as a source of nourishment) gains widespread popularity

Kagome’s History

A view to the future, based on the advice of a superior officer

Kagome’s Value Creation Through Coexistence with Society

Established brand statement “True to Nature, the Flavor of Kagome”

Began selling tomato juice Started Kagome Gekijo Began selling plant-based lactic acid Labre

Established KAGOME U.S.A. INC., a U.S. corporation

Began production of tomato sauce (now tomato puree)

Number of shareholders

exceeded 100,000

Established Kagome

Australia Pty Ltd.Began selling

Yasai Seikatsu 100 Announced corporate philosophy of “Appreciation,” “Nature” and

“Corporate Openness”

Began selling tomato ketchup in a plastic bottle, the first of its kind in the world

Kagome’s founder Ichitaro Kanie began growing Western vegetables

Began production of tomato ketchup and

Worcester sauceRenamed company “Kagome Co., Ltd.”

and created the tomato logo

Listed in First Section of the Nagoya Stock

Exchange (NSE)Listed in First Section

of the Tokyo Stock Exchange (TSE)

Began selling Carrot 100 Series

Began selling Anna Mamma

Began selling fresh tomatoes (Kokumi Tomato)

Began selling Yasai Ichinichi Kore Ippon

(and the larger “Kore Ippai”)

“Handbook of Tomato Cultivation” distributed to contract farmers

Changed corporate logo and trade name to KAGOME

The words of a superior army officer—that

“the future of agriculture is in growing

Western vegetables”—opened Ichitaro

Kanie’s eyes, and prompted him to begin the

challenge of cultivating tomatoes, which were

still rare in Japan at the time. Farmers could

not survive by depending on rice growing

alone. Ichitaro Kanie opened up a new

“progressive” path for Japanese agriculture,

to protect families and communities and pass

them on to the next generation.Kagome’s Founder

Ichitaro Kanie (1904)

Attempts to resolve social issues in emerging countries

Kagome possesses genetic resources for 7,500 varieties of tomatoes. Over the

course of our 120-year history, we have created tomato varieties to match

different needs. Today, we are trying to resolve food shortages and other food

problems overseas using tomatoes for processing, which is the area in which

Kagome can make most effective use

of its knowledge. We are currently

advancing numerous operations with

local partners overseas, such as

cultivating tomatoes for processing in

Senegal and processing tomatoes in

India.

Collaboration and mutual support with partners

Kagome’s contract farming system not only ensures stable

procurement but also achieves coexistence with partners. Kagome asks

farmers to grow tomatoes based on a pre-determined transaction price

agreed through advance discussions with

the farmers. This means Kagome buys all

of the tomatoes produced. Additionally, by

providing guidance for maintaining and

improving quality, Kagome has built a

win-win relationship with these farmers.

Promoting the good health of citizens

While awareness of public health increases with the growing seriousness of Japan’s super-aged society, consumption of vegetables—which are essential to good health—continued to decline. Kagome regards this situation as a critical social issue to be resolved by Kagome. We are therefore engaged in continuous research and development efforts to contribute to extending healthy life expectancy by delivering numerous products that enable people to consume delicious vegetables in a casual manner.

Food

topi

cs Ice cream goes on sale in Japan Chocolate goes on sale in Japan

Mayonnaise goes on sale in Japan

Korokke no Uta (The Croquette Song) becomes a popular hit

Western-style foods are introduced in the hit culinary novel Kuidoraku

All Japanese elementary schools begin to serve school lunches

Instant ramen noodles go on sale

First convenience stores opened

Retort pouch food products go on sale

Fast food becomes popular in Japan

A decreasing trend in rice consumption begins

Consumption tax introduced in Japan

Heisei (1993) rice crisis

O-157 food poisoning incident occurs

Home-meal replacement market grows

Decision made to obligate labeling of genetically modified (GM) food products

Food Safety Basic Act enacted

A string of food mislabeling incidents occur

Basic Act on Food Education enacted

Japan’s food self-sufficiency ratio drops below 40%

Posted net sales of



Meiji period (1868-1912)

Taisho period

(1912-1926) Showa period (1926-1989) Heisei period (1989-2019)

1899 1903 1906 1908 1933 1963 1966 1967 1972 1978 1983 1992 1995 1998 2000 2001 2003 2004 2005 2006 2010 20141988

Established Taiwan Kagome Co., Ltd.The first business

expansion overseas

1952

Built a production plant in Nishiyashiki, Araomachi,

Tokai City in Aichi Prefecture, and entered full-scale

production of tomato sauce

Present day

Posted net sales of


Posted net sales of


Posted net sales of


Posted net sales of


Meat-based diet (as a source of nourishment) gains widespread popularity

Kagome’s History

A view to the future, based on the advice of a superior officer

Kagome’s Value Creation Through Coexistence with Society

Established brand statement “True to Nature, the Flavor of Kagome”

Began selling tomato juice Started Kagome Gekijo Began selling plant-based lactic acid Labre

Established KAGOME U.S.A. INC., a U.S. corporation

Began production of tomato sauce (now tomato puree)


exceeded 100,000

Established Kagome

Australia Pty Ltd.Began selling

Yasai Seikatsu 100 Announced corporate philosophy of “Appreciation,” “Nature” and

“Corporate Openness”

Began selling tomato ketchup in a plastic bottle, the first of its kind in the world

Kagome’s founder Ichitaro Kanie began growing Western vegetables

Began production of tomato ketchup and

Worcester sauceRenamed company “Kagome Co., Ltd.”

and created the tomato logo

Listed in First Section of the Nagoya Stock

Exchange (NSE)Listed in First Section

of the Tokyo Stock Exchange (TSE)

Began selling Carrot 100 Series

Began selling Anna Mamma

Began selling fresh tomatoes (Kokumi Tomato)

Began selling Yasai Ichinichi Kore Ippon

(and the larger “Kore Ippai”)

“Handbook of Tomato Cultivation” distributed to contract farmers

Changed corporate logo and trade name to KAGOME

The words of a superior army officer—that

“the future of agriculture is in growing

Western vegetables”—opened Ichitaro

Kanie’s eyes, and prompted him to begin the

challenge of cultivating tomatoes, which were

still rare in Japan at the time. Farmers could

not survive by depending on rice growing

alone. Ichitaro Kanie opened up a new

“progressive” path for Japanese agriculture,

to protect families and communities and pass

them on to the next generation.Kagome’s Founder

Ichitaro Kanie (1904)

Attempts to resolve social issues in emerging countries

Kagome possesses genetic resources for 7,500 varieties of tomatoes. Over the

course of our 120-year history, we have created tomato varieties to match

different needs. Today, we are trying to resolve food shortages and other food

problems overseas using tomatoes for processing, which is the area in which

Kagome can make most effective use

of its knowledge. We are currently

advancing numerous operations with

local partners overseas, such as

cultivating tomatoes for processing in

Senegal and processing tomatoes in

India.

Collaboration and mutual support with partners

Kagome’s contract farming system not only ensures stable

procurement but also achieves coexistence with partners. Kagome asks

farmers to grow tomatoes based on a pre-determined transaction price

agreed through advance discussions with

the farmers. This means Kagome buys all

of the tomatoes produced. Additionally, by

providing guidance for maintaining and

improving quality, Kagome has built a

win-win relationship with these farmers.

Promoting the good health of citizens

While awareness of public health increases with the growing seriousness of Japan’s super-aged society, consumption of vegetables—which are essential to good health—continued to decline. Kagome regards this situation as a critical social issue to be resolved by Kagome. We are therefore engaged in continuous research and development efforts to contribute to extending healthy life expectancy by delivering numerous products that enable people to consume delicious vegetables in a casual manner.

Food

topi

cs Ice cream goes on sale in Japan Chocolate goes on sale in Japan

Mayonnaise goes on sale in Japan

Korokke no Uta (The Croquette Song) becomes a popular hit

Western-style foods are introduced in the hit culinary novel Kuidoraku

All Japanese elementary schools begin to serve school lunches

Instant ramen noodles go on sale

First convenience stores opened

Retort pouch food products go on sale

Fast food becomes popular in Japan

A decreasing trend in rice consumption begins

Consumption tax introduced in Japan

Heisei (1993) rice crisis

O-157 food poisoning incident occurs

Home-meal replacement market grows

Decision made to obligate labeling of genetically modified (GM) food products

Food Safety Basic Act enacted

A string of food mislabeling incidents occur

Basic Act on Food Education enacted

Japan’s food self-sufficiency ratio drops below 40%

Posted net sales of



Outline of K

agome

President’s C

omm

itment

Feature Story

Kagom

e’s Managem

entK


rowth Strategies


pany Information

pdf_011_0116687911906.indd 12-13 2019/09/02 17:35:10

Outline of Kagome

Research & Development

Developing Plant Varieties & Producing Seeds and Nursery Stock

CultivationKagome u t i l i zes cont rac ted growing of specified varieties, offers agricultural guidance, and cultivates fresh tomatoes using large-scale greenhouses.

Product ProductionKagome uses manufacturing processes and quality management methods that maximize the value of its raw ingredients, through an optimal combination of good ingredients and technology.

Kagome utilizes its own genetic resources for agricultural produce to create useful varieties through crossbreeding, and produces and supplies competitive seed and nursery stocks.

Procurement & Primary ProcessingKagome purchases only high-quality raw ingredients that meet its own standards, and carries out primary processing to ensure that the flavor of its ingredients is not degraded.

Creating DemandKagome engages in activities to communicate value to convey the value of its products to customers and create demand.

Kagome engages in research and product development ef for ts to maximize the value of agricultural produce—nature’s bounty—and contribute to longevity and good health.

Vertical integration business model

Kagome’s Revenue Structure

Source: Intage SRI / Period: January through December 2018 / Based on monetary amountGeographic area: All of Japan / Sales Settings: Supermarkets & convenience stores

Source: Intage SRI / Period: January through December 2018 / Based on monetary amountGeographic area: All of Japan / Sales Settings: Supermarkets, drug stores & convenience storesAlso includes: Ambient & chilled, and the tomato juice category

Source: Intage SRI / Period: January through December 2018 / Based on monetary amountGeographic area: All of Japan / Sales Settings: Supermarkets, drug stores & convenience storesAlso includes: Ambient & chilled, and the mixed vegetable juice category

Source: Intage SRI / Period: January through December 2018 / Based on monetary amountGeographic area: All of Japan / Sales Settings: Supermarkets, drug stores & convenience storesAlso includes: Ambient & chilled, and the mixed vegetable and fruit juice category

Volume of vegetables consumed in Japan

14.10 million tons

*Green and yellow vegetables + other vegetables

Source: Food Balance Sheet (fiscal 2017 estimates), Ministry of Agriculture, Forestry and Fisheries (MAFF) Volumes supplied by Kagome are calculated based on actual 2017 sales results.

Note: In past reports, Kagome’s supply volume was calculated using the sorted consumption amount from MAFF’s Food Balance Sheet as the denominator and Kagome’s actual raw ingredient usage results as the numerator. However, this calculation method has now been changed, since it was judged more appropriate to use the actual amount of product delivered by Kagome to customers as the standard. We now use the net amount of food from MAFF’s Food Balance Sheet as the denominator and Kagome’s actual product sales results as the numerator.

Ratio by business segment

International Business39,558 million yen

Domestic Agri-Business11,464 million yen

Domestic Processed Food Business157,725 million yen

209,865 million yenJanuary 1, 2018 - December 31, 2018

Other Businesses1,117 million yen

Net sales

12,000 million yenJanuary 1, 2018 - December 31, 2018

International Business336 million yen

Domestic Agri-Business-161 million yen

Other Businesses

795 million yen

Domestic Processed Food Business11,030 million yen

Operating Income

*Figures after elimination and adjustment between segments.*Figures for FY2014 are for the nine-month period between April 1 and December 31, 2014, as a result of a change to the company’s business year.

Tomato ketchup Tomato juice Mixed vegetable juice Mixed vegetable and fruit juice

Creating consistent value,

from seeds to table

60.3% 55.5% 44.1% 55.7%

*Images are of representative products in each category

0

3,000

6,000

9,000

12,000

15,000

0

40,000

80,000

120,000

160,000

200,000

(FY)

Unit: million yen

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Net sales Operating income

151,857151,857 150,122150,122157,743157,743 154,506154,506

164,321164,321153,469153,469

114,476114,476

140,526140,526 146,913146,913157,642157,642

6,2526,2527,2487,248

8,6148,614

9,9309,9308,9848,984

6,3596,359

4,5924,5925,1855,185

8,1438,143

10,70010,700157,725157,725

11,03011,030

15,000

-1,000

500

0

1,000

1,500

2,000

2,500

3,000

0

6,000

9,000

12,000

Unit: million yen

(FY)2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018


-925-925-708-708

-47-47 -70-70

806806 673673

-10-10

732732 862862

-161-161-236-236

6,5316,531 6,3626,362 7,2357,235 7,6357,6358,9318,931 9,6839,683

7,4937,493

10,98210,982 11,48711,487 11,40911,409 11,46411,464

50,000 2,000

10,000

0

20,000

30,000

40,000

400

0

-1,000

-3,000

-2,000

800

1,200

1,600

Unit: million yen

(FY)2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018


-1,522-1,522

-735-735-1,071-1,071

-1,824-1,824

-656-656 -683-683 -828-828

203203

1,2501,250837837

14,70014,700 13,60013,600 14,43214,432 16,01816,01821,14021,140

28,08328,08335,93335,933

42,62442,624 42,73542,735 44,13644,136

336336

39,55839,558

Dom

estic

Pro

cess

ed F

ood

Busin

ess

Dom

estic

Agr

i-Bus

ines

sIn

tern

atio

nal B

usin

ess

Kagome’s Strength

Our product lineup boasting the largest share in Japan

Volume of green and yellow vegetables consumed in Japan

3.41million tons

Volume of green and yellow vegetables supplied by Kagome

Volume of vegetables supplied by Kagome

600 thousand tons

616 thousand tons

17.6％ of the volume of green and yellow vegetables and 4.4% of all vegetables* consumed in Japan are supplied by Kagome


Outline of K

agome

President’s C

omm

itment

Feature Story

Kagom

e’s Managem

entK


rowth Strategies


pany Information

pdf_011_0116687911906.indd 14-15 2019/09/02 17:35:11

Outline of Kagome

Accounting Period (Fiscal Year) 2008 2009 2010 2011 2012 2013 2014*1 2015 2016 2017 2018 2018

Profit and Loss (Unit: million yen)

Net sales 175,134 171,937 181,304 180,047 196,233 193,004 159,360 195,619 202,534 214,210 209,865 1,890,676

Research and development expensess 2,541 2,577 2,567 2,655 3,009 3,084 2,566 3,240 3,219 3,346 3,557

Advertising expenses 6,784 5,326 6,312 6,122 7,053 6,918 5,319 4,671 5,086 5,977 6,109

Operating income 4,447 6,397 7,978 8,466 9,278 6,775 4,328 6,723 10,946 11,968 12,000 108,108

Operating income to net sales (%) 2.5 3.7 4.4 4.7 4.7 3.5 2.7 3.4 5.4 5.6 5.7

Ordinary income 4,249 7,304 8,389 9,213 10,025 7,529 4,969 7,015 11,315 12,618 12,051 108,568

Profit attributable to shareholders of parent 2,000 2,981 2,473 4,217 6,480 5,105 4,366 3,441 6,764 10,100 11,527 103,847

Financial Condition (Unit: million yen)

Total assets 140,938 134,005 142,661 148,207 168,965 183,621 203,413 208,885 219,804 195,737 193,612 1,744,252

Net assets 87,707 89,418 88,941 92,815 104,432 113,023 124,566 126,344 97,991 105,853 104,843 944,532

Interest-bearing debt 23,267 12,665 16,159 15,851 24,004 31,088 35,904 37,419 74,538 37,168 37,302

Cash Flows (Unit: million yen)

Cash flows from operating activities 4,137 15,230 18,241 11,757 7,407 (1,073) 1,753 12,039 18,824 16,598 10,130 91,261

Cash flows from investing activities (5,431) (6,458) (19,093) (4,985) (1,781) (3,941) (7,110) (11,023) (18,576) 17,271 (299) (2,694)

Cash flows from financing activities 4,433 (12,544) 1,414 (1,861) 1,050 2,322 1,793 1,555 6,904 (40,761) (1,083) (9,757)

Free cash flow (1,559) 13,902 8,757 7,866 (1,417) (12,661) (4,269) (4,011) 10,442 21,588 1,575

Per Share Information (Unit: yen)

Net income per share 20.09 29.97 24.87 42.40 65.15 51.39 44.01 34.64 68.30 114.03 130.03

Net assets per share 866.10 885.16 880.13 920.81 1,020.86 1,094.07 1,204.77 1,201.96 1,043.89 1,150.50 1,146.85

Annual dividend per share 15.0 15.0 15.0 18.0 20.0 22.0 16.5 22.0 24.5 30.0 40.0

Key Management Indicators (Unit: %)

Net assets to total assets 61.1 65.7 61.4 61.8 60.1 59.1 58.8 57.2 42.1 52.1 52.5

Return on equity (ROE) 2.3 3.4 2.8 4.7 6.7 4.9 3.8 2.9 6.4 10.4 11.3

Return on assets (ROA) 3.0 5.3 6.1 6.3 6.3 4.3 2.6 3.4 5.3 6.1 6.2

Dividend payout ratio 74.7 50.1 60.3 42.5 30.7 42.8 37.5 63.5 35.9 26.3 30.8

Dividend on net assets ratio 1.7 1.7 1.7 2.0 2.1 2.1 1.4 1.8 2.2 2.7 3.5

Non-Financial Information

Number of employees*2 (persons) 2,038 2,031 2,045 2,101 2,209 2,349 2,368 2,569 2,621 2,456 2,504

Energy used*3 (thousands of gigajoules) 1,368 1,360 1,379 1,319 1,297 1,289 1,329 1,336 1,380 1,376 1,334

Water used*3 (thousands of tons) 3,583 3,440 3,484 3,452 3,627 3,945 3,850 3,828 3,628 3,442 3,247

CO2 emissions*3 *4 (tons) 70,682 69,875 69,908 66,379 65,454 62,777 64,693 63,968 66,499 66,599 64,839

Number of employees in managerial positions (managers and above) (in Japan) (Unit: persons)

Number of employees (consolidated)(Unit: persons) Energy used (Unit: thousands of gigajoules) CO2 emissions (Unit: tons)Number of new hires (Unit: persons) Water used (Unit: thousands of tons)

2017201620152014 2018(FY)

2017201620152014 2017201620152014

1,3801,3361,32966,49963,96864,693

3,6283,8283,850

1,376 66,599

3,442

2018(FY)

1,334

3,247

2018(FY)

64,839

2017201620152014 2018(FY)

2017201620152014 2017201620152014

1,3801,3361,32966,49963,96864,693

3,6283,8283,850

1,376 66,599

3,442

2018(FY)

1,334

3,247

2018(FY)

64,839

2017201620152014 2018(FY)

2017201620152014 2017201620152014

1,3801,3361,32966,49963,96864,693

3,6283,8283,850

1,376 66,599

3,442

2018(FY)

1,334

3,247

2018(FY)

64,839

MalesMales MalesFemalesFemales Females

*1 The accounting period was changed in 2014, and FY2014 only covers the 9-month period from April 1 until December 31, 2014. *2 Scope: Kagome Group*3 Scope: Kagome Co., Ltd. + Group companies in Japan*4 Company management fixed coefficient of 0.421kg-CO2/kWh was used as the electricity conversion factor for calculated values of CO2.

*Scope: Kagome Group *Scope: Kagome*Scope: Kagome and Kagome Axis

2018(FY)

2017201620152014 2017201620152014

382

365

370

350

353

347

6

364

356

8

365

358

7

2017201620152014

2,621

567

2,054

2,456

554

1,902

2,569

553

2,016

2,368

536

1,832

44

25

19

43

16

27

43

17

26

52

31

21

2018(FY)

2,504

586

1,918

2018(FY)

54

19

35

17 20

2018(FY)

2017201620152014 2017201620152014

382

365

370

350

353

347

6

364

356

8

365

358

7

2017201620152014

2,621

567

2,054

2,456

554

1,902

2,569

553

2,016

2,368

536

1,832

44

25

19

43

16

27

43

17

26

52

31

21

2018(FY)

2,504

586

1,918

2018(FY)

54

19

35

17 20

2018(FY)

2017201620152014 2017201620152014

382

365

370

350

353

347

6

364

356

8

365

358

7

2017201620152014

2,621

567

2,054

2,456

554

1,902

2,569

553

2,016

2,368

536

1,832

44

25

19

43

16

27

43

17

26

52

31

21

2018(FY)

2,504

586

1,918

2018(FY)

54

19

35

17 20

Key Financial and Non-Financial DataThousands of U.S. dollars


Outline of K

agome

President’s C

omm

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Feature Story

Kagom

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rowth Strategies


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pdf_011_0116687911906.indd 16-17 2019/09/02 17:35:11

President’s Commitment

Becoming a strong company capable of sustainable growth by transform-ing into a “vegetable company”

Naoyuki Terada, President and Representative Director

Achievements under First Mid-Term Management Plan

At Kagome, in 2016, we set our sights on becom-ing a “strong company capable of sustainable growth, using food as a means of resolving social is-sues” by the year 2025. We have also adopted the long-term vision of transforming from a “tomato com-pany” to a “vegetable company” and aim to achieve revenue of 250 billion yen and core operating income of 20 billion yen by 2025*. Under our First Mid-Term Management Plan (2016-2018), we implemented earnings structural reforms in the domestic processed food business in fiscal years 2016 and 2017 that enabled us to achieve a stable consolidated operating margin in the 5% range. In particular, the implementation of earnings structural reforms using marginal income ratio as a KPI in the domestic processed food business led to good results. It goes without saying that our profits are generated through every single product. We once again became conscious of this “profit on every single product,” radically reduced the costs of goods sold and sales promotion, and exhaustively reviewed “unreasonableness, waste and inconsistency” in fixed costs. In the process, we also made a start on reviewing unprofitable products and this had the effect of improving profit by approximately 800 million yen. Combined with other measures, the review enabled us to surpass our initial profit target throughout the three years. In the meantime, vegetable beverages, which are Kagome’s core business, performed strongly and Yasai

Seikatsu 100 Smoothie and tomato juice, which is now a food with functional claims, contributed to expansion of earnings. Furthermore, in our direct-marketing business, products using specially selected ingredients won over health-conscious elderly consumers. I believe that our quick response to new trends by designing products that meet the needs of our target customers and increasing product value have borne fruit. I feel that by offering products that match market “needs and seeds” whilst steadily implementing the “earnings structural reform so that stronger sales come with better profits,” we have succeeded in raising the profitability of every single product and enhancing our general “earning power” in every organization.

Remaining Issues and Measures to Address Them

There are, however, still issues that need to be ad-dressed in our domestic agri-business and internation-al business. The agri-business performed strongly in fiscal year 2016 but posted an operating loss in fiscal years 2017 and 2018 due to its slow response to over-supply in the fresh tomato market. Our lack of capacity to assess market conditions is hugely regrettable. In the agri-business, improving the accuracy of sup-ply-demand forecasting is a matter of great urgency and we are urgently implementing earnings structure reforms to ensure that the business remains profitable even when market conditions deteriorate.

Achievement of Mid-Term Management Plan(Comparison of fiscal year 2018 and fiscal year 2015)

* Our previous targets in accordance with J-GAAP were revised as a result of transition to IFRS.

(FY)

Net salesChanges in Consolidated Management Indicators

195.63.4%

5.4% 5.6% 5.7%

202.5 214.2 209.9

12.012.010.96.7

2015 2016 2017 2018

CAGR2015-1821.3%

CAGR2015-182.4%

Mid-Term Management Plan period

Operating income Operating margin

(Unit: Billions of yen)

Achievements under First Mid-Term Management Plan (Fiscal 2016-2018) and Remaining Issues


President’s C

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The international business was affected by a world-wide increase in tomato paste inventories in the B-to-B market for processed tomato products and therefore recorded lower revenue. I believe that one factor behind this poor performance is that we have shown too much respect for the business autonomy of overseas group companies and have failed to instill in overseas group companies the earning knowhow we have built up in Japan. To ensure that overseas group companies are sufficiently profitable to be able to stand on their own two feet, we are currently increasing the involvement of staff from Japan in overseas group companies and

working to be able to realize the quality and production technology improvements and cost reductions seen in Japan at each of our overseas subsidiaries as well. In summary, although we succeeded in achieving the outcomes expected under the First Mid-Term Manage-ment Plan in our domestic processed food business, the issues described above still remain in our domestic agri-business and international business, resulting in the earnings structural reform falling a year behind schedule. Therefore, we recognize that we urgently need to address the delay during the Second Mid-Term Management Plan period.

proposals more flexibly. As a result, we removed the boundaries between sales divisions which have separated operations into consumer use, food service use, and agri-business (fresh vegetables), and we are now conducting organized sales activities across a wide range of channels including home cooking, home meal replacement and restaurant channels. We will also detect signs of fresh food trends and take on new domains. Having already established the Vegetable Business Division in October 2018, we launched the “Vegetable Processing Business Project,” which links producers and processors via the network we have built up to date and manufactures and sells custom-made products for food service use. We have also made a start on the development of processed vegetable products with brand power and some of these are already on sale. Furthermore, anticipating that a time will come when our products will no longer sell as they have in the past in Japan, we also intend to fully utilize the “Kag-ome brand” assets we have built up over our 120-year

history to create a business pillar out of experiences and services. This represents our challenge of “experi-ential business.” For example, our Health Business Department, set up last year, launched the business of providing health promotion services for companies and local governments. Also, in April 2019, we opened the “Veggie Kids Nursery,” which teaches children to love vegetables, near our Tokyo Head Office and are piloting a childcare service that incorporates food edu-cation. In the same month, we opened “Kagome Yasai Seikatsu Farm Fujimi” in Fujimi, Nagano Prefecture, which proposes new value by combining a production plant tour and an experiential learning facility where visitors can enjoy eating vegetables. These initiatives can be described as litmus tests for building up know-how and translating this into the creation of new busi-nesses. In Japan, it is obvious that the market will contract in the future. Given this situation, transition into the growth stage through full utilization of Kag-ome’s brand strength to create new value is a major goal under the Second Mid-Term Management Plan.

Quantitative targets (IFRS basis)

Recognize risks and identify issues

The Second Mid-Term Management Plan (2019-2021) is positioned as a growth phase for aiming to realize our long-term vision of transforming from a “tomato company” to a “vegetable company” and we determined issues to be addressed by management for realization of this vision based on exhaustive environmental forecasting looking ahead 10 years into the future. We are slow at responding to change, and the rapid change of the times can pose a risk to Kagome’s sustainable growth. To prevent this risk, we need to prepare by predicting the trends of the future as much as possible. To realize this, we will have to draw on the opinions of people outside the company. Taking on board opinions of our five External Directors, who are experts in areas such as food and health, population and household structure, deregulation, ESG considerations and climate change risks as well as global risks, we earnestly discussed “themes that need to be addressed more quickly” and visualized the issues that need to be addressed.

To resolve the social issue of “longer, healthier lives”

Our long-term vision of transforming from a “tomato company” to a “vegetable company” encapsulates our desire to contribute to resolving wider social issues. The extent to which we can contribute to longer, healthier lives is inevitably much narrower if we confine ourselves to tomatoes. Every vegetable contains many different types of nutrients and other components that can contribute to people’s health and many studies have shown that the consumption of vegetables prevents lifestyle diseases and other illnesses. Obviously, to extend healthy life expectancy, it is important to consume various types of vegetables, which is why this vision can be communicated clearly and has also found support among people outside the company. I believe that, through our initiatives to achieve this vision, we will be able to make a significant contribution to resolving the “health” issues faced by every Japanese in the 21st century. Through collaboration among people both inside and outside the company, we will create business that is derived from the vegetable business and develop a comprehensive

Basic Strategies and Issues to Be Addressed under the Second Mid-Term Management Plan

The basic strategy of the Second Mid-Term Management Plan is to “achieve growth by continuing to strengthen earning capacity and taking on the challenge of entering new businesses and domains.” We will accomplish the earnings structural reforms in the domestic agri-business and international business that we failed to complete under the First Mid-Term Management Plan during the fiscal year 2019 and we will turn to growth from the fiscal year 2020 by taking on the challenge of entering new businesses and domains. The most important point in tapping into new domains is to respond to the growing trend towards dining out. We will step up proposals for “eating vegetables as a side dish” to the growing home meal replacement and restaurant markets. To address this challenge, we implemented restructuring in October 2018, putting in place a structure that allows us to conduct activities from development of products and menus to making

health business which is not merely confined to the provision of food. The amount of progress we make toward actually becoming a “vegetable company” under the Second Mid-Term Management Plan will be key to this. The desired outcomes are an increase in vegetable consumption, Kagome’s growth, and achieving longer, healthier lives. We are aiming to achieve this vision by 2025 but this will not be the end of our mission. We recognize that this challenge is simply laying the foundations for the next step that comes after Kagome has become a “vegetable company” both in name and reality.

Recognition of risks and opportunities to avoid being a passing phenomenon

The risk that will have the greatest impact on Kagome’s management is a contraction of demand due to population decline in Japan. The situation is so serious that the business model for processed foods which has held good for more than 100 years is no longer tenable. We, too, would probably be unable to achieve “longer, healthier l ives” by repeatedly implementing measures to address immediate

12.4

2018 (Results)*

250.0

20.0

2025 (Plan)2021 (Plan) (FY)

Revenue Core operating income Core operating income margin

6.7%7.6% 8.0%

16.2

184.6212.0CAGR

2018-214.7%

CAGR2021-254.2%

CAGR2018-219.3%

CAGR2021-255.4%

(Unit: Billions of yen)

Background to the Formulation of the Second Mid-Term Management Plan and Its Overview

Why is Kagome aiming to transform to a “vegetable company”?

* Results based on Japanese accounting standards have been rewritten and displayed in accordance with the IFRS standard.


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style reform legislation. Following a review of our systems, we introduced teleworking and flextime systems in April 2019 to encourage employees to fulfil their potential according to their circumstances. Alongside the system development, we are also continuing our efforts to change employees’ mindsets. Long working hours, male-dominated working environments, lifetime employment, seniority system, and other customs peculiar to Japan only came into being on the assumption that a larger population would keep driving economic growth. On the contrary, Japan will be facing negative growth in the near future. Under this environment, it will be integral to improve the performance of individual employees. Therefore, we established the concrete target of “reducing total working hours per year to 1,800 hours by 2020.” This is not a matter of merely reducing overtime. By setting the target, we are trying to raise the question of how individuals use their time, or how individuals spend their lives. I have reiterated to Kagome’s employees that the “work style reform” is the “lifestyle reform.” Work is just one part of life. Spending time away from work with family or on hobbies, cultural activities or skill development is essential for enriching your life. From Kagome’s viewpoint, we cannot foster diversity if the employees only mix with their company colleagues and their families. The necessity of conducting the work style reform only comes out of our desire for our employees to work innovatively. The working hours reduction initiative has come to fruition, resulting in a steady reduction in total working hours. The rate of paid leave usage, previously at around 50%, has reached 83% on average at the end of the fiscal year 2018. Because

we have seen healthier profit since we introduced the work style reform, the reform has contributed to solid productivity improvement. My biggest wish is that our employees lead happy lives. We will continue implementing the work style reform in the future to ensure that our employees can say they have led fulfilled lives and were able to do what they wanted while working at Kagome and to develop innovative individuals through this.

Adapting to the times

My idea is that management means understanding the times; in other words, the most crucial factor in management is management’s understanding of the future. The social environment changes more quickly than we anticipate. We sometimes need to reflect on the past, but past frameworks and systems are no longer tenable in times of turbulent change. For this reason, we should transform organizat ions, companies and individuals. The aim of these changes is what Kagome strives for, our long-term vision. And this long-term vision also serves as the foundation for the future beyond the vision’s time horizon. We are now in the first fiscal year of our Second Mid-Term Management Plan, which marks a new step towards realization of our vision. Kagome will proceed steadily and more speedily towards realization of its vision of transformation to a “vegetable company.” Through engagement with our many shareholders and by using food as a means of resolving social issues, we will continue to focus our efforts on the realization of a sustainable society and enhancement of our corporate value.

How do we transform our

organizations, companies

and individuals in times of

turbulent change?

The answer is Kagome’s

long-term vision.

problems. Kagome is seriously addressing this risk. To do this, accelerating the development of new domains and new businesses and understanding how we can stem the decline in demand and turn it around are major challenges. The key to this problem lies in the shift in consumer values towards “experiences over goods.” Under the Second Mid-Term Management Plan, we are gradually giving shape to this concept as explained earlier. Addressing global issues is also essential in order to achieve sustainable growth. Natural threats also pose a significant risk to us because of the nature of our products, which are made from agricultural produce. We are not immune to recent threats such as the impact of intensifying extreme weather events all over the world. Mitigating this risk, we diversify procurement bases of tomatoes, our core ingredient in both our domestic and international businesses, into the northern and southern hemispheres. The diversification not only serves as a risk hedge but as a strategy to improve our competitive advantage.

Also, in overseas markets, we are implementing a range of measures using tomatoes, which is Kagome’s specialist field. In our farming business in Senegal, West Africa, we raised the salary of local tomato producers and reduced poverty and hunger, thereby helping to create a new market based on the principle of local production for local consumption. In India, Kagome encourages a shift away from fresh tomatoes, which are often used as a seasoning, towards processed tomatoes, and formed a new market for hygienic, preservable processed tomatoes. As such, we are introducing initiatives aimed at making producers more economically stable. While these initiatives can only contribute to achieving some of the sustainable development goals (SDGs), Kagome is able to help resolve social issues through its businesses whilst also growing itself through the assessment of risks and opportunities. I believe that Kagome’s mission lies in expanding such initiatives from tomatoes to vegetables as a whole and realizing the long-term vision of transforming from a “tomato company” to a “vegetable company.”

Our goal of becoming a “strong company”

Multiple factors are needed for us to become a “strong company” that grows continuously in an age when the domestic market is contracting. At the top of the list comes diversity & inclusion. As for women’s participation, we have adopted the target of “50% of the workforce consisting of women, from employees to executive officers” by around 2040. Going forward, we will also need to consider hiring more non-Japanese employees and enhanc ing our systems and frameworks so that anyone can fulfil themselves at Kagome. The second requirement is to actively incorporate the opinions of experts from outside Kagome into management. The key drivers for the initiative are our five External Directors. The third requirement is the ability to execute tasks quickly. It is developed through the interplay of strong organizations, well-targeted management and personal strengths. At present, it is especially important to enhance personal strengths and we are pressing forward with the work style reform to maximize the potential of individuals. Governance required for a “strong company” involves the key factors of “transparency” and “fairness.” My

thoughts on the realization of fairness are expressed in the “Kagome Code of Conduct” revised in October 2018. With the aim of endeavoring to conduct fair bus iness p rac t ices and fu l f i l l i ng our soc ia l responsibilities with a high standard of ethics looking ahead the future, I held exhaustive discussions with all executive officers and adopted the new code, which consists of the three strands of “mutual support,” “respect for human rights” and “fairness,” as the basis for the conduct of Kagome Group employees (for more details, please refer to p. 62). In addition, Kagome launched a succession plan in full scale and have begun rotating employees’ assigned jobs with an eye on personnel changes several years ahead and making decisions on the allocation of human resources through discussion from diverse perspectives.

Rationale of the work style reform and its results

A company is made up of people. Believing that a company will not change unless its employees fundamentally change their mindsets, Kagome has worked to be “a company with a pleasant and rewarding workplace” ahead of the government’s work

A “strong company” survives even in an era of contraction


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Robust corporate governance management strategy

Generating premiums in existing businesses

Key word

Health

Domestic Processed Food BusinessDomestic Agri-BusinessInternational Business

P42-43

P34-35

P44-51

Kagome’s business segments


Foundation for value creation

Corporate philosophy

Kagome’s priority issues

Realization of a sustainable society through the resolution of social issues

Kagome’s three business segments

and the infrastructure underpinning them

Prediction of conditions and risk

recognition

P28

P36-51P26-27

Global risks, SDGs and other global issues

● Natural capital 1. Vertically integrated business with potential for diversification

2. Ability to create sustainable products

3. Brand power backed by product safety and security

● Social and relationship capital

● Human capital ● Manufactured capital

● Financial capital ● Intellectual capital

Six capitals Sources of competitive advantagesP29

Appreciation

Nature

Corporate Openness New businesses and domains

By 2025Transform from a “tomato company”

to a “vegetable company”

Two long-term visions


“To become a strong company capable of sustainable growth,

using food as a means of resolving social issues”

By around 204050% of the workforce consisting of

women- from employees to executive officers

P31

Changes in the external conditions

P36-41

P52-65

Product safety and securityApproach to environmental preservationSustainable procurementHuman resources supporting value creationCollaboration with community

Raise daily vegetable consumption from 277 g to 350 g Raise our percentage of green and yellow vegetables supplies from 17.2% to 20%Raise revenue to 250 billion yen

Push forward with business activities based on a diversity of perspectives and cater to diversifying consumer needs Be a strong company with a pleasant and rewarding workplace and high levels of productivity

Robust corporate governance management strategy

Generating premiums in existing businesses

Key word

Health

Domestic Processed Food BusinessDomestic Agri-BusinessInternational Business

P42-43

P34-35

P44-51

Kagome’s business segments


Foundation for value creation

Corporate philosophy

Kagome’s priority issues

Realization of a sustainable society through the resolution of social issues

Kagome’s three business segments

and the infrastructure underpinning them

Prediction of conditions and risk

recognition

P28

P36-51P26-27

Global risks, SDGs and other global issues

● Natural capital 1. Vertically integrated business with potential for diversification

2. Ability to create sustainable products

3. Brand power backed by product safety and security

● Social and relationship capital

● Human capital ● Manufactured capital

● Financial capital ● Intellectual capital

Six capitals Sources of competitive advantagesP29

Appreciation

Nature

Corporate Openness New businesses and domains

By 2025Transform from a “tomato company”

to a “vegetable company”

Two long-term visions


“To become a strong company capable of sustainable growth,

using food as a means of resolving social issues”

By around 204050% of the workforce consisting of

women- from employees to executive officers

P31

Changes in the external conditions

P36-41

P52-65

Product safety and securityApproach to environmental preservationSustainable procurementHuman resources supporting value creationCollaboration with community

Raise daily vegetable consumption from 277 g to 350 g Raise our percentage of green and yellow vegetables supplies from 17.2% to 20%Raise revenue to 250 billion yen

Push forward with business activities based on a diversity of perspectives and cater to diversifying consumer needs Be a strong company with a pleasant and rewarding workplace and high levels of productivity


Value Creation ProcessTo become “a strong company capable of sustainable growth, using food as a means of resolving food issues,”

which is what Kagome strives for by 2025, we need to become an organization that constantly predicts changes in

the conditions surrounding our business and is capable of responding flexibly. Providing society with value that only

Kagome can create and resolving social issues, we will continue to achieve sustainable growth and contribute to the

realization of a sustainable society. That is Kagome’s process for creating value.


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Recognition of External Conditions

Global Goals

Kagome’s Perspectives Risks and OpportunitiesKagome’s Initiatives

Business Initiatives Initiatives to Strengthen Our Foundation for Value Creation

Disease prevention, improved health awareness

Decrease in vegetable consumption

Widespread popularization of digital health management

Research and dissemination of information regarding vegetables and health, research into the functionality of tomatoes and other vegetables, and research into the prevention of diseases through exercise and nutritional intake

Development of health promotion programs aiming to achieve behavioral change, aimed at municipal governments and companies, etc.

Development of products that will help solve malnutrition among the elderly and action to encourage consumption of vegetables by poor householdsDevelopment of products that do not require much time and effort for preparation and cookingSearch for companies with advanced technologies and examination of M&A

Establish “Quality & Environmental Policy” based on our corporate philosophy and brand statement “True to Nature, the Flavor of Kagome"

Promote quality assurance in every process of the supply chain

Begin climate change scenario analysis based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)Implement initiatives to mitigate water riskPromote co-existence with diverse organisms, focusing on reducing the impact of agriculture on biodiversity

Develop human resources and a management system capable of managing every aspect starting with the fields on a global basis

Respect equal and fair cooperation with suppliers and promote procurement that allows both the suppliers and Kagome to grow

Promote work style reform

Promote diversity

Promote health and productivity management

Implement initiatives to extend healthy life expectancy

Implement initiatives for the agricultural development and regional revitalization

Expansion of production areas for tomatoes and other vegetables utilizing abandoned agricultural land and people wishing to become farmers

Expanding products with functional claims among fresh food products

Converting tomato growing guidance and know-how into data and providing it as a service

Examining production and procurement systems with an eye on the possibility that land currently suited to the cultivation of tomatoes may change dramatically

Appealing to customers regarding the importance of vegetables stockpiled for emergency preparedness

Considering alternative containers and other packaging with low environmental impacts

Automatic control in facility gardening and prediction of shipment volumes by utilizing weather forecasts

Research into data marketing using data obtained through analysis of customer behaviors

Establishing the framework to develop varieties, and considering the possibilities of utilizing developed technologies

Strengthening capacity for vegetable solutions in the home meal replacement and restaurant markets

Reducing own wasteLabeling products with “best before” dates and implementing measures to extend shelf life

Shifting to targeted marketing strategies

Changes in diet due to aging

Decrease in total food-related spending

Business successor issues

Shortage of farmers, abandonment of farmland

Increase in new entrants to agricultural market

Advances in smart farming

More abnormal weather conditions

Occurrence of natural disasters (earthquakes and tsunamis)

Accelerated plastic-free move

Trends towards dining out and global growth of food services

Initiatives to address food loss

Emergence of millennials

Growing utilization of AI at the production workplace

Increasingly sophisticated analysis of customer purchasing behavior

Advancement of genome editing techniques

Japa

nOv

erse

asJa

pan

& Ov

erse

as

“Super-aged society” and surge in single-member elderly households →Health and poverty issues has surfaced

Labor shortages→The productive working population has

diminished by 7 million

Advance of both women and elderly people into society →Resolving the M-shaped curve. We have now reached

an age where people can live to the age of 100

Realization of “Society 5.0”→New developments such as IoT and AI

Increasing severity of global environmental problems→Global warming, climate change, increase in

occurrences of abnormal weather conditions

Water risk→Growing water shortages and water pollution

Population growth in emerging countries→Imbalance between populations and food supplies

Obesity problems in developed countries→Increase in the number of diabetes patients

Growing disparity of wealth (i.e. gap between rich and poor)→Increase in poverty and famine


Construct and further strengthen a robust corporate governance structure based on both autonomy and heteronomy

Collaboration with community

Sustainable Procurement

Product safety and securitySee

p.44for details

Approach to environmental preservation

Human resources supporting value creation

Food & healthFood & health

Agriculture

Global environment

Changes in product distribution and consumers

Technological progress & innovation

Agriculture

Global environment

Changes in product distribution and consumers

Technological progress & innovation

Population decline & societal ageingPopulation decline & societal ageing

Seep.56

for details

Seep.46

for details

Seep.48

for details

Seep.49

for details

Seep.51

for details


Recognizing External Conditions, Risks and OpportunitiesTo realize what Kagome strives for by 2025, we need to swiftly recognize changes in external conditions and identify risks

and opportunities for Kagome from short-, mid- and long-term perspectives. We also believe that in order for Kagome to

continue being a company that is “needed” by society, it is important for us to implement initiatives with regard to both of

the two aspects of business operations and our foundation for creating value (value creation infrastructure).


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Brand power backed by product safety and security:

Demand CreationProduct ProductionPrimary Processing and Procurement Cultivation

Research and Development

Quality Development & Seedling Production

32

1 Vertically integrated business with potential for diversification:

Our vertically integrated business model, which ensures control at every stage, from seeds to soil cultivation, growth, harvest, production, all the way to the final product, gives us greater competitiveness, enabling us to supply unique products rooted in nature, ranging from processed foods and fresh vegetables to seedlings, in Japan and around the world.

Ability to create sustainable products:Our standardization of product development processes and expertise allows us to actively hire young employees to develop human resources and create sustainable, appealing products.

In a brand strategy survey (by Nikkei Research Inc.), Kagome ranked highly, coming in at 16th in the overall ranking*, in recognition of “product safety and reliability” and “product quality.” *2017 Survey

Important Issues (Materiality) of Kagome

Kagome has begun to identify important issues (materiality) in order to remain a “strong company.” By identifying fac-

tors that are indispensable to the circulation of Kagome’s sustainable growth and the resolution of social issues and allo-

cating capital appropriately, the company aims to remain an integral part of society. Kagome’s business builds on leveraging “the value of agricultural products,” which are part of nature’s bounty. We pro-

cure safe, high quality raw materials, process them with all the flavors and nutrients intact, and deliver them to consum-

ers. We are also endeavoring to branch out into experiential business by fully utilizing Kagome’s assets, including its re-

search findings relating to vegetables and health as well as the Kagome brand. Kagome leverages the six capitals

explained below to conduct these businesses and to create Kagome’s corporate value.

Kagome’s brand statement “True to Nature, the Flavor of Kagome” is Kagome’s promise to society and customers. We seek out the value of ingredients, from tomatoes to vegetables, and work to create sustainable value.

Process of identifying the factors

Six capitals

■ Sources of Competitive Advantages

Examine and determine the appropriateness of materiality in dialogues with stakeholders

Determine important aspects in self-evaluation

In fiscal year 2018 we identified social issues that Kagome should address by using the SDGs, ISO 26000, GRI, SASB, etc. as a reference, and narrowed down the issues to approximately 100, taking into account the aspects that are important for sustainable value creation. In addition, we held a workshop with 27 members from corporate planning, quality assurance and other departments, assessed the importance of the issues both in terms of society and business and put them in order of priority. Through this process, we narrowed the issues down to around 20 and organized them into eight groups: three social issues to be addressed through business activities and five components of the foundation for value creation. These issues were then deliberated at Management Meetings and meetings of the Board of Directors, and were deemed to be self-evaluated important issues (materiality).

In fiscal year 2019, we plan to conduct third-party evaluation of the self-evaluated materiality through dialogues with stakeholders and experts outside the company and verify the gap between self-evaluation and third-party evaluation to identify materiality. We will determine specific measures and KPIs in relation to the materiality that have been identified, evaluate each initiative and implement a PDCA cycle.

Identify social issues

Important issues (materiality) of Kagome Six Capitals Essential for Value Creation and Sources of Competitive Advantage

Busi

ness

asp

ects

Longer, healthier lives• Response to super-aged society• Development of products that can help solve health issues• Promotion of healthy lifestyle habits


• Sustainable procurement of natural raw materials• Response to dramatic decline in agricultural population • Improvement of productivity through the utilization of

technology• Establishment of sustainable agriculture • Contribution to turning agriculture into a growth industry


• Response to critical shortage in food supply due to population growth

• Response to malnutrition as a consequence of poverty • Response to rising raw material costs• Food loss

Foun

datio

n fo

r val

ue c

reat

ion

Corporate Governance • Compliance

Diverse Human Resources • Creation of innovative human resources• Consideration for human rights

Supply chain • Strengthening of supply chain management

Environment • Response to climate change• Response to water risk

Quality • Product safety and security

FY2018 FY2019

Business strategies

Sustainability strategies

Management

Kagome’s “Six Capitals” Main components

Social and relationship capital

Diverse partnerships and social contribution

Cooperation among industry, government and academia to resolve social issues (locally grown, nationally consumed campaign, research to promote health, agricultural development)Provision of food education to a total of 3,506,000 children using proprietary contents Development of tomato processing industry in emerging countries

Human capitalTomato spirit that connects diversity

Diverse human resources supporting the development of vegetable products Internal qualifications, including vegetable advisor and rice omelet certification, and unique human resources, such as food planner Fostering our founder’s entrepreneurial spirit that runs in the company through requests for new business plans, etc.

Manufactured capitalBalancing product safety and reassurance with flavor

Belief in “Quality First, Profit Second,” in other words, that product “safety and reassurance” are the most important social responsibilities of Kagome and that “if the quality of our products is good, then profits will follow.”Advanced vegetable processing technologies (concentration of tomato juice by reverse osmosis under high pressure, carrot juice extraction, vegetable fractionation technology, etc.) Mechanisms for blending various agricultural products from all over the world whilst maintaining consistency in taste and flavor

Intellectual capitalCreation of new value through open innovation

Open innovation for the integration of cutting-edge technologies from different industries into new businesses Creation of new value by combining products and services

Financial capitalShareholder structure consisting mainly of Kagome fan shareholders

Stable financial base due to establishment of long-term relationship with Kagome fan shareholdersSuitable investment leading to business growth and shareholder returns

Natural capital Productivity from fieldsProduction of safe and high-quality ingredients based on the ideology that “fields are the primary production plant” Own standards for pesticides and fertilizers that take environmental impact into considerationVegetable cultivation technology and expertise focused on tomatoes

Group Important issues (materiality)


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Kagome’s Long-term Vision Looking Ahead to 2025 and Beyond

Earnings structure reform Work style reform

Raising the value of existing productsInnovating new productsNarrowing down existing and new productsReducing slow-moving products, disposal and inventory Reducing fixed costs

Growth by continuing to improve earning power, starting new businesses and taking on new domains

Two Long-term Visions

Kagome has adopted the two long-term visions described below to become a “strong company”

Issues to Be Addressed to Achieve What Kagome Strives for by 2025 and Contributing Measures

Transform from a “tomato company” to a “vegetable company” by 2025

We will become a company that provides a variety of vegetables in a

variety of forms to a variety of markets, and we aim to raise the daily

vegetable consumption of Japanese people to 350 g and raise our

percentage of green and yellow vegetables supplied by Kagome to 20%.

Kagome is making progress towards achieving “corporate

openness,” which is part of its corporate philosophy, and we are

actively pursuing diversity, which we see as a management strategy

for becoming “a strong company.” Our long-term vision “50% of the

workforce consisting of women–from employees to executive

officers” is also intended to create innovation through diversity. To

promote the empowerment of women, we are focusing on “hiring

more women,” “work style reforms to encourage more women to

continue working even after life events” and the “development of

female managers.” By realizing “the right person in the right place”

and a “results-oriented approach” regardless of gender through

such activities to promote diversity, we aim to increase organization-

al productivity and improve Kagome’s corporate value.

50% of the workforce consisting of women–from employees to executive officers by around 2040


Expand the range of vegetable types that we provide by strengthening business in the domain of fresh vegetables such as baby leaf lettuce and packed salads

Grow consumption of vegetable-based dishes through “vegetable solutions”

Boost vegetable intake through health promotion services that change customer behavior

Promote health in communities through collaboration with area distributors and local governments with whom we have concluded comprehensive agreements

Reveal relationships between vegetable intake and health promotion through joint research with Hirosaki University


Grow the vegetable processing business in Japan

Produce tomatoes for processing and vegetables on abandoned farmland, and take measures to counter aging and insufficient labor among producers

Discover producers who are dynamic and support their sales activities at “farm support” direct marketing

Expand the “locally grown, nationally consumed” model for processed foods

Grow consumption of the agriculture, fishery, and livestock products of the local governments with whom we have concluded comprehensive agreements

World food shortages

Develop production areas for tomatoes for processing and help improve productivity in emerging countries

Utilize cutting-edge technology to contribute to sustainable, highly efficient agriculture

Earnings structure reform Growth in new businesses and new domains

Kagome’s strategy of creating a cycle of sustainable growth and solving social issues

Net sales 220.0 209.9

Aiming to address the low vegetable intake of Japanese people

150.0

7.0158.8

11.8Net sales

Operating income

Domestic Agri-BusinessTurning Japanese agriculture into a growth industry

15.0

1.011.5

FY2018 (Results)

International BusinessAiming to become the top global tomato supplier

55.0

3.039.5

0.3

*Including “Other businesses” *Including “Other businesses”

*Transition to IFRS from FY2019 (FY2018 results are results on an IFRS basis)

Domestic Processed Food Business *Figures after elimination and adjustment between segments

*Figures after elimination and adjustment between segments

Operating income 11.0 12.0Operating margin 5.0% 5.7%

Initial plan FY2018 (Results)

Initial plan

Initial plan

FY2018 (Results)Initial plan

FY2018 (Results)

Revenue 184.6 212.0billion yen

billion yen

billion yen

billion yen

Domestic Processed Food BusinessStrengthening proposals to the home meal replacement and

restaurant markets through vegetable solutions

134.0

11.9

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

FY2018 (Results)

148.012.4

Revenue


Revenue


FY2021 (Plan)

FY2018 (Results) FY2021 (Plan)

Domestic Agri-BusinessPromoting earnings structural reforms and rebuilding product lineup

11.2

-0.114.0

0.8

International BusinessStrengthening business for food service industry and expanding

vegetable beverages in Asia

39.4

0.650.0

3.0

Core operating income 12.4 16.2

Core operating income margin 6.7% 7.6%


First Mid-Term Management Plan 2016-2018

Prohibiting overtime after 8:00 p.m. Introducing a telecommuting systemIntroducing a staggered working hour system

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

billion yen

Net sales

Operating income -0.1

Net sales

Operating income

Complete earnings structure reforms in domestic agri-business and international business in fiscal year 2019

Start new businesses and take on new domains, aiming for growth by 2020-2021

Go from reforming work styles to reforming lifestyles


Revenue


Second Mid-Term Management Plan 2019-2021


Kagome’s Vision and Growth StrategiesKagome considers its brand statement “True to Nature, the Flavor of Kagome” to be a promise to customers and contributes to the realization of people’s healthy diets through the development and delivery of products that benefit from the value of nature’s bounty. We established two long-term visions, “transform from a ‘tomato company’ to a ‘vegetable company’” and “50% of the workforce consisting of women—from employees to executive officers,” and we have been working to increase Kagome’s corporate value while creating a cycle of sustainable growth and solving social issues.

2016 2025

Japan

Daily vegetable intake per person 277 g 350 g

Total vegetable consumption 13.71 million tons 17.04 million tons

Of which, green and yellow vegetables 3.29 million tons 4.09 million tons

Kagome

Vegetables supplied/Percentage 582,000 tons/4.2% 845,000 tons/5.0%

Of which, green and yellow vegetables 567,000 tons/17.2% 823,000 tons/20.1%


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Review of First Mid-Term Management Plan 2016-2018Under the three-year First Mid-Term Management Plan that began in 2016, we focused on priority issues to realize what

Kagome strives for by 2025, targeting net sales of 220 billion yen, operating income of 11 billion yen, an operating margin

of 5.0% and ROE of 5.0%.

Changes in Management Indicators

Results of Two Reforms

Summary by Priority Issue

Compared to fiscal year 2015, net sales increased by 14.2 billion yen and operating income increased by 5.3 billion yen. We are now able to maintain an operating margin in the 5% range and our profitability has improved significantly. Compared to our revised targets, although ROE was on target, other management indicators fell short of the target level and this is an issue that still needs to be addressed in the future.

In the domestic processed food business, alongside growth in beverages, we made progress in areas such as reducing the cost of sales ratio by reviewing raw material procurement policies and improving production efficiency, reducing the ratio of sales promotion costs through management of earnings based on marginal income and reducing unprofitable products, and this led to expansion of sales and profits. However, in the domestic agri-business and international business, improvement of earnings was behind schedule, causing consolidated

business results to depend more heavily on the beverage business. To move away from a beverage-dependent earnings structure, it is essential to diversify sources of earnings in the domestic processed food business and strengthen earning capacity in the agri-business and international business. In the domestic agri-business business, we were slow in adapting to oversupply in the market and our earning potential worsened. The creation of an earnings structure immune to price fluctuations remains a challenge. In the international business, net sales decreased due to the sale of US-based PBI, but income edged up mainly due to our withdrawal from unprofitable business in Asia. Our global food service business, which is a pillar of business growth, is steady but we still have a long way to go with initiatives to strengthen the earning power of our overseas subsidiaries.

Under the First Mid-Term Management Plan, we established a new company responsible for shared services to consolidate and improve the efficiency of business operations, and we also introduced a staggered working hour system and a telecommuting system to improve the productivity of employees and support work-life balance. In addition, we made headway toward creating a comfortable working environment, including introducing a “regional card system” to support workers who find it difficult to continue with their careers after life events.

Monthly overtime hours per Kagome employee were reduced by 20%, from 17 hours to 14 hours, and the average paid leave usage rate also improved sharply from 55% to 83%. Meanwhile, we put effort into promoting diversity, and awareness among Kagome employees has also been changing. Women are now actively participating in a range of workplaces, with the percentage of women in management positions growing from 2.2% to 5.4%, and women accounting for more than 50% of all newly hired graduates in fiscal years 2017 and 2018. Kagome was also selected by the Ministry of Economy, Trade and Industry as a winner of the New Diversity Management Selection 100 program in recognition of its activities to promote workplaces in which diverse perspectives and values are utilized.

The priority issues under the Mid-Term Management Plan, which consist of seven themes, are summed up as follows. While we made progress with the development of foundations for issue management, there are still many areas for improvement in terms of implementation of PDCA.

Indicator FY2015 FY2016 FY2017 FY2018 Initial target Revised targetIncrease under the

Mid-Term Management Plan (2018–2015)

Net sales 195.6 202.5 214.2 209.9 220.0 215.0 +14.2

Operating income 6.7 10.9 12.0 12.0 11.0 13.0 +5.3

Operating margin (%) 3.4 5.4 5.6 5.7 5.0 6.0 +2.3 pt

ROE（%） 2.9 6.4 10.4 11.3 5.0 8.0 +8.4 pt

Changes in Consolidated Management Indicators (Unit: billion yen)Mid-Term Management Plan period

Seven Themes Three-year Summary

Improvement of value in existing businesses and categories

Earnings from tomato juice improved significantly, reflecting improvement in value due to added functional claims. We are currently conducting activities to add functional claims to many products besides tomato juice.

Creation of new categories and business models and generation of earnings from them

We did not achieve our initial targets in any new business in which we sought to contribute to earnings, including GREENS and packed salads.

Yasai Seikatsu 100 Smoothie gained top market share after the concentration of resources on this category.

Promotion of globalization and generation of earnings from international business

Profitability of the international business improved following a review of the consumer business in Asia.

The earnings of overseas subsidiaries are unstable and although performance is improving in terms of quality, there are still many issues to be addressed.

Promotion of solutions business In fiscal year 2018, our ability to meet customer needs definitely increased due to the establishment of the Solution Sales Division, despite slow growth in collaborative development with CVS.

“Work style reform” and “earnings structure reform”

We made significant progress with work style reforms. We established Kagome Axis as a shared services organization.

In terms of earnings structure reform, marginal income ratio and ratio of break-even point to sales improved considerably.

Initiatives to improve corporate value

We implemented various measures to improve corporate value, including transitioning to a corporate structure with an audit and supervisory committee, evaluating the effectiveness of the Board of Directors, preparing to transition to IFRS, and issuing an integrated report, and we improved our governance capacity.

Optimization of resource allocation Resource allocation improved due to stronger governance. However, this did not lead to the introduction of a framework for raising the level of investment projects.

1

2

3

4

5

7

6

“Earnings structure reform”

“Work style reform”

Improving the efficiency of business operations and promoting work-life balance

Changes in Business Results by Segment (after elimination and adjustment between segments; JGAAP)

Results of work style reform (FY2015 → FY2018)

Introduction of various types of system including a staggered

working hour system and a telecommuting system

20% reduction in average monthly overtime hours worked

per Kagome employee (17 hours → 14 hours)

28 pt improvement in average paid leave usage rate:

(55% → 83%)

Promoting Diversity

3.0 pt increase in percentage of women in managerial

positions (2.2% → 5.4%)

23 pt increase in percentage of newly hired female

graduates (37% → 60%)Selected by the Ministry of Economy, Trade and Industry as a winner of the New Diversity Management Selection 100 program

As of December 31, 2018

FY2015 FY2018

Net sales Component ratio

Operating income

Component ratio Net sales Component

ratioOperating income

Component ratio

Domestic Processed Food Business 142.0 72% 5.8 87% 158.8 76% 11.8 98%

Of which, beverages 74.4 38% 2.3 34% 89.1 42% 5.8 48%

Domestic Agri-Business 11.0 6% 0.7 10% 11.5 5% -0.1 —

International Business 42.6 22% 0.2 3% 39.5 19% 0.3 2%

(Unit: billion yen)

Although reforms produced results in the domestic processed food business, reforms are behind schedule in the domestic agri-business and international business.


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Outline of the Second Mid-Term Management Plan 2019-2021The Second Mid-Term Management Plan, which began in fiscal year 2019, is an important milestone for Kagome’s

achievement of its long-term vision. Kagome will start new businesses and take on new domains and will focus on

further improving its social value and economic value.

Basic Strategy and Four Priorities

Consolidated Quantitative Targets (IFRS Basis)

Continued Earnings Structure Reform

Kagome’s basic strategy is “growth by continuing to improve earning power, starting new businesses and taking on new domains. We will complete earnings structure reforms in the domestic agri-business and international business during fiscal year 2019 and will transition to growth from fiscal year 2020 by starting new businesses and taking on new domains. We also have four priorities and will apply these to each business.

With the application of international financial reporting standards (IFRS) starting from fiscal year 2019, we have adopted core operating income as a unique reference indicator. In fiscal year 2021, which is the final fiscal year of the plan, we aim to achieve revenue of 212.0 billion yen, core operating income of 16.2 billion yen and a core operating margin of 7.6%.

In the domestic processed food business, we will continue to reduce slow-moving inventory and inventory disposal costs and we will also diversify sources of earnings and expand “food products and food service use.” In the domestic agri-business, we will strengthen our earning capacity on the assumption of weak market prices for fresh tomatoes. In the international business, we will put in place a profit-making business structure through earnings structure reform and will then aim to achieve net sales on a scale of 50 billion yen, mainly through the expansion of high added value products.

Basic Strategy Growth by continuing to improve earning power, starting new businesses and taking on new domains

1. Continue to boost value and reduce “unreasonableness, waste and inconsistency”2. Start new businesses and take on new domains3. Go from reforming work styles to reforming lifestyles -Be a company that is enjoyable and meaningful to work

for, even with strict accountability4. Develop the mechanisms to be a strong company

Priorities

Initiatives in Line with Four Priorities

Boosting value We will focus on boosting value in terms of “improving the convenience of containers” for tomato sauce and other products, and “enhancing the f lavor” of fresh tomatoes as wel l as “strengthening products with functional claims.” In vegetable beverages, we will step up the search for ingredients and development of products that meet growing demand for sugar-free products among all generations. Meanwhile, we will focus on raising the prices of products that offer more value to a level commensurate with the value they offer. Using the same kind of thinking, we will also strive for higher sales of existing high added value products at a price level at which reasonable earnings can be expected.

Reducing the cost of goods sold and slow-moving inventory and inventory disposal, and increasing logistical efficiency

Besides ensuring stable procurement of raw materials and narrowing down unprofitable products, we plan to reduce the cost of goods sold by improving production line efficiency. We will also focus on reducing slow-moving inventory and inventory disposal, which remains an issue, and on improving logisti-cal efficiency.

Vegetable solutions Commercial farms and vegetable processing plants are faced with many challenges including reducing the workloads and expanding sales networks in the agricultural industry, and consumers want food preparation and cooking to be simpler and less time-consuming. The business which consists in proposing solutions that leverage Kagome’s expertise to meet these needs is called “vegetable solutions.” Vegetable solutions is a top strategic priority for maximizing earnings and steadily making progress towards a “vegetable company” under the Second Mid-term Management Plan. Under our new structure without the boundaries between the consumer use, food service use and agri-business (fresh vegetables), we will expand the vegetable processing business as a new business and will propose convenient vegetable-based dishes using vegetable ingredients and condiments to the home meal replacement and restaurant markets.

Initiatives for service business We will lay the foundations for commercialization of the health pro-motion seminars tackled since 2017 and strengthen the related sales structure. We will also explore new business potential at facilities such as Kagome Yasai Seikatsu Farm Fuj imi, which we opened as a sightseeing fa-cility that embodies a “veg-etable company.”

Work style reform “Work style reform” will enter a second phase. We will promote improvement in the efficiency of business operations through standardization and systemization, ensuring that all employees grasp that “work style reform” means “reforming their own lifestyles” and are able to produce results at work in 8 hours per day for the achievement of total annual working hours of 1,800. We will also focus on making it even easier for employees to work, including letting employees have secondary jobs and introducing a flextime system, and we are aiming for an average percentage of paid leave of 80%.

Promoting diversity Aspiring for the ideal “scenario where all employees experience self-realization and job satisfac-tion through their proactive work at Kagome, increasing the sense of unity and strength of its orga-nizations,” Kagome will further promote the development of structures that enable it to fully demonstrate the effectiveness of diversity management. Besides aiming to achieve our vision of “50% of the workforce consisting of women—from employees to executive offi-cers” by around 2040, we will also make a start on increasing work op-portunities for LGBT, foreign workers and people with disabilities.

Initiatives to improve quality Aiming for zero quality failures, we will pursue more sophisticated quality management. At the same time, we will adopt an integrated approach to environmental management, which takes into consid-eration issues such as prevention of global warming, water preser-vation on a global scale, and protection of biodiversity.

Optimization of resource allocation For the achievement of its long-term vision, Kagome will promote the “optimization of resource allocation.” More specifically, we will thoroughly manage the allocation of resources by creating a business portfolio in business units, and we will focus on the innovation of business models and divestment.

Investment decision criteria and monitoring of investment effect

Kagome will seek to improve the probability of success of investment projects by review-ing investment criteria and setting new criteria. We will also introduce mechanisms for monitoring and evaluating important projects after in-vestment.

Continue to boost value and reduce“unreasonableness, waste and inconsistency”

Starting new businesses and taking on new domains- For transformation to a “vegetable company”

Go from reforming work styles to reforming lifestyles -Be a company that is enjoyable and meaningful to work

for, even with strict accountabilityDevelop the mechanisms to be a “strong company”

Meet needs by enhancing value in terms of functionality, convenience and flavor

Proposing “vegetable-based dishes” in the growing home meal replacement and restaurant markets

Aiming to achieve total annual working hours of 1,800 by 2020 Mechanisms to increase the probability of success of equipment and business investments

Quantitative Targets by Business Segment(after elimination and adjustment between segments; IFRS basis) Unit: billion yen

Actual Result for FY2018* FY2021 Target

Revenue Core operating income Revenue Core operating

income

Domestic Processed Food Business 134.0 11.9 148.0 12.4

Domestic Agri-Business 11.2 -0.1 14.0 0.8

International Business 39.4 0.6 50.0 3.0

Unit: billion yen

Actual Result for FY2018* FY2021 Target Increase/Decrease

(2021-2018） FY2025 Target

Revenue 184.6 212.0 +27.4 250.0

Core operating income 12.4 16.2 +3.8 20.0

Core operating margin 6.7% 7.6% +0.9 pt 8.0%

*Results based on Japanese accounting standards have been rewritten and displayed in accordance with the IFRS standard.

*Revenue minus cost of sales and selling, general and administrative expenses, plus share of profit (loss) of entities accounted for using the equity method



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In Japan, with its super-aged society, how to extend healthy life expectancy has become an important social issue. In the domestic processed food business, we will contribute to longer, healthier lives by providing a range of products such as beverages and food products to all generations, from children to the elderly, increasing their vegetable intake and solving the issue of low vegetable intake among Japanese people.

Beverages Kagome sells tomato juice, vegetable beverages, such as the Yasai Seikatsu 100 Series, and lactic acid bacteria beverages. We are seeking to increase the range of products meeting various health needs and suitable for various drinking scenarios and develop versatile and habitual drinking uses including increased functions under the catchphrase “To provide vegetables with ease and a delicious taste,” aiming to offer “Lifelong Health Beverages” that meet consumers’ expectations for good health.

Beverages Kagome Tomato Juice was renewed and released as a product with two functional claims: “increase in good cholesterol” and “decrease in high blood pressure,” and recorded strong sales. Yasai Seikatsu 100 Smoothie has been well received, especially among women in their 20s, 30s and 40s, reflecting recognition of the 330ml recappable container and its product value as a quick light meal as well as efforts to tap into new drinking scenarios with the launch of the Yasai Seikatsu 100 Smoothie Soy Potage, which also serves as a meal replacement. However, sales of the existing Yasai Seikatsu 100 Series and 200ml beverages such as Yasai Ichinichi Kore Ippon decreased due to competition with other beverages such as lactic acid bacteria beverages, soymilk and FOSHU (foods for specified health use) beverages. Given the increasing number of variations of rival health beverages, Kagome needs to remind customers of the health benefits of vegetable beverages.

Food and Other Products Sales of tomato ketchup and tomato-based condiments were slightly down on the year-ago level. In fiscal year 2019, we will seek to create demand for tomato ketchup through promotional events such as the Kagome Rice Omelet Stadium. Sales of other products for gifts and products for direct marketing sales were strong, reflecting Kagome’s focus on the sale of products which offer value in terms of health, flavor and availability for a limited time only that only Kagome can offer.

Food and Other Products Besides food products such as tomato ketchup, tomato-based condiments and sauces, Kagome sells products for food service use, for direct marketing sales and for gifts. Sales of condiments for home use are on a gradual downward trend as a result of consumers’ growing inclination towards dining out. We are strengthening proposals of side dishes and menus using vegetables to the expanding home meal replacement and restaurant markets.

We will contribute to longer,

healthier lives in Japan by

increasing the supply of

vegetables through beverages,

food products and a range of

other products.

*After elimination and adjustment of inter-segment transactions

Performance trends (FY2018)

2018 2019(Plan)

2017

(Unit: billion yen)

Net sales/Revenue

(J-GAAP) (IFRS)

157.7135.9

157.6132.9（*）

2018 2019(Plan)

2017

(Unit: billion yen)

Operating income/Core operating income

(J-GAAP) (IFRS)

11.0 10.710.7 11.5（*）

Recognition of General Business Conditions Results and Issues to Be Addressed Matters Requiring Focus in the Mid- to Long-term

StrengthKagome’s brand power built over its 120-year historyAbility in product development to avoid additives as much as possible Ability in ingredient procurement to deliver the bounty of nature to productsAbility in sales to tapping into many markets, including the ambient, chilled and fresh food markets and the markets for side dishes and gifts

Weakness

Opportunity ThreatFurther intensifying competition in the health beverage market

Steep rise in ingredient prices due to globally unseasonable weather

Acceleration of decrease in total spending on food due to a decrease in the population and population aging

Increasingly diversified health orientation

Demands of the elderly and dual-earner households for simple cooking

Expansion of restaurant and cooked food due to an increase in dining out

Constraints in product development due to reliance on natural farm ingredients

Dispersion of marketing investment caused by diverse business composition

Decline in the relative value of our products due to the emergence of competitors’ high-quality private brands

Specific Measures to Address Weaknesses and Threats

Turn past product development failures and other important data into knowhow and create a knowledge database

Put marketing investments in order of priority based on clarification of domains that require strengthening and marketing direction

Differentiate Kagome beverages from own-brand beverages and health beverages of other companies through natural ingredients and additive-free manufacturing technologies

Prepare for risks of climate change and price fluctuation through decentralized procurement, the adoption of efficient supply lines and activities to reduce costs

Gain loyal customers through direct marketing sales amid the ongoing decline in total expenditures on food in Japan

In fiscal year 2018, domestic processed food business achieved the targets under the First Mid-term Management Plan, with net sales reaching 157.7 billion yen, up 0.1% year on year, and operating income amounting to 11.0 billion yen, up 3.1% year on year.

Beverages In the beverage category, we will strengthen three domains: foods with functional claims, the plant-based domain and target-specific beverages.

Foods with Functional Claims Kagome plans to expand beverages that are classed as foods with functional claims. In February 2019, we launched Labre Alpha Plain with the functional claim that it “improves the intestinal environment.”

Plant-based Domain We plan to launch beverages incorporating not only the vitamins and minerals, which are nutrients contained in vegetables and fruit, but also nutrients from the plant-based domain such as soymilk and nuts. We will differentiate our beverages from existing vegetable beverages by strengthening their potential as meal replacement products.

Target-specific Beverages Kagome plans to strengthen beverages for clearly defined targets. In April 2019, we launched a beverage for millennials in their 20s and 30s who purchase fewer vegetable beverages compared with other generations. We also plan to launch beverages to help maintain and improve health among elderly consumers. The existing Yasai Seikatsu 100 Series is clearly positioned as a beverage that parents want their children to drink and we renewed the series, introducing flavors that will be popular with children.

Food and Other Products In the food business, we will strengthen proposals for the growing home meal replacement and restaurant market as well as the home cooking market, based on the theme of vegetable solutions. Kagome will solve the problems of the home meal replacement and restaurant markets by proposing seven strategic menus using processed vegetable products and condiments based on ingredients such as vegetable puree, sautéed onions and frozen grilled vegetables, which can eliminate vegetable prep amid labor shortages. We will also help increase vegetable consumption in Japan by satisfying the needs of consumers who want to consume great-tasting vegetables without any fuss.

Net sales

(up 0.1% year on year)

Operating income

157.7

Masanori MiyachiExecutive OfficerMarketing Division Director


Domestic Processed Food Business

billion yen

(up 3.1% year on year)

11.0 billion yen


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Improve the accuracy of yield forecasting through use of the latest technologies, and conduct research and development on harvesting robots, etc.

Strengthen our ability to control yields to avoid selling at cut-rate prices

Offer “vegetable solutions” by integrating the knowledge and human capital Kagome has built up in its agri-business and utilizing Kagome’s existing domestic sales network in Japan

Collaborate with sales activities integrating consumer use, food service use, and agri-business (fresh vegetables) to create a network of vegetable production areas and processing businesses

Develop new highly functional vegetables in cooperation with our research and development department

Domestic Agri-Business In the domestic agri-business that commenced in 1998, we have been selling fresh tomatoes grown all year round at large greenhouse to mass retailers and other stores. Since 2014, we have produced and sold baby leaf lettuce and have been conducting business activities to transform from “a tomato company” to “a vegetable company.” While net sales have grown to a level exceeding 10 billion yen since fiscal year 2015, it has also become clear that, as our business operations have expanded, fluctuations in market conditions for fresh tomatoes caused by the weather and other factors have a major impact on the business results of the agri-business. We are currently focusing on increasing the accuracy of yield predictions to mitigate the impact of such fluctuations.

In 2018, the domestic agri-business secured higher sales but posted an operating loss for the second consecutive year, with net sales amounting to 11.5 billion yen, up 0.5% year on year, and the operating loss coming in at 0.1 billion yen. Although the loss was smaller than a year ago, reflecting progress in improving costs, further earnings structure reform is required in the future.

Vegetable Business Division Under the Second Mid-term Management Plan, which began in 2019, we established the “Vegetable Business Division” to accelerate growth into “a vegetable company.” In addition to the “Agricultural Production Department,” which is responsible for the business of producing and selling fresh tomatoes and baby leaf lettuce, we set up the “Vegetable Solution Department,” which develops production areas and processing sites and builds a network between processing sites and customers, with the aim of utilizing tomatoes for processing, carrots, new vegetables, surplus vegetables and vegetable scraps. By creating new business models and strengthening our procurement foundations, we aim to expand our earnings and help develop Japan’s agricultural industry.

Fresh tomatoes Kagome’s fresh tomatoes are high in added value, containing higher levels of specified ingredients such as lycopene and beta-carotene than regular tomatoes. In December 2018, we launched GABA Select as a tomato product with functional claims. The shipping volume of fresh tomatoes has been increasing thanks to the improved productivity of large-scale greenhouse farming and contract farms. However, competitors’ shipping volumes to the fresh tomato market has also increased sharply. Assuming that 2019 will continue to see the current low market price of fresh tomatoes, we wil l focus on the development and procurement of new high added value varieties as well as the development of industrial and institutional sales channels. We will also institute earnings structure reforms that will enable us to secure profit even under challenging business conditions, including strengthening our capacity to control yields to avoid selling at cut-rate prices.

Baby leaf lettuce The market for baby leaf lettuce is expected to expand in the future. Sales of washed baby leaf lettuce are strong because it can be eaten right out of the package without washing, providing value that meets consumer demand for time-saving, simple and healthy products. We have also increased our production bases for the Tokyo metropolitan area from only one to three. While our sales of baby leaf lettuce are still small, this is a product which is expected to grow in the future.

Vegetable Solutions Our vegetable farms and processing bases face a range of problems such as workloads and expansion of their sales networks. Meanwhile, customers and consumers have a strong preference for appealing production areas and attractive vegetables, and want time-saving, simple products to avoid prepping vegetables altogether due to a shortage of labor. Kagome’s “vegetable solutions” address these problems and meet these needs by integrating the knowledge and human capital Kagome has built up in its agri-business and utilizing our existing domestic sales network. We plan to diversify the varieties of vegetables we offer and our production areas (both in Japan and overseas) to meet the diverse needs of our customers. Our sales bases in Japan will establish systems to quickly develop and supply local vegetables as domestic processed vegetables and, by selling these products both locally and nationally, we will aim for expansion of locally grown, locally consumed products and locally grown, nationally consumed products. To realize this idea, we have assigned Vegetable Solution Engineers (VSEs) to our Hokkaido and Kyushu branches, which are close to the main production areas in Japan. We will collaborate with sales activities integrating the consumer use, food service use, and agri-business (fresh vegetables) to meet the needs of local customers and create a network of vegetable production areas and processing businesses. We also plan to carefully select appealing ingredients made from various types of vegetable scraps and imperfect vegetables that arise in the sorting process throughout Japan and to commercialize these ingredients. As for our efforts to develop new highly functional vegetables in cooperation with our research and development department, we also plan to examine the possibility of developing all kinds of products, including fresh food, processed food and supplements.


Opportunity ThreatIntensifying competition in the vegetable processing business

Fewer farmers due to acceleration of the super-aged society

A decrease in farm land due to climate change such as global warming and the emergence of new diseases and pests

The government’s activities to turn agriculture into a growth sector and revitalize agricultureA shortage of farm successors and an increase in abandoned farmlandGrowing demand for processed vegetable products amid labor shortages

StrengthKagome brand established in the fresh tomato market

Advanced ability to develop varieties of vegetables, and processing technologies

Capacity for all-year-round supply based on own sales force and distribution networks providing stable shipments and nationwide 100,000 stores

WeaknessA lack of accuracy in forecasting fluctuations in the fresh tomato market and a lack of ability to adjust demand and supplyA lack of consumer recognition of new fresh vegetables such as baby leaf lettuceA lack of varieties and production areas for vegetables other than tomatoes and baby leaf lettuce

We will reform the earnings

structure of the fresh tomato

business and aim to transform

to “a vegetable company” by

promoting “vegetable solutions.”

*After elimination and adjustment of inter-segment transactions

Performance trends (FY2018)

2018 2019(Plan)

2017

(Unit: billion yen)

Net sales/Revenue(*)

(J-GAAP) (IFRS)

11.5 12.011.4 11.2

2018 2019(Plan)

2017

(J-GAAP) (IFRS)

-0.1-0.1

0.1

-0.2

(Unit: billion yen)

Operating income/Core operating income（*）

Satoshi YamaguchiDirector & Managing Executive OfficerVegetable Business Division DirectorGeneral Manager, Vegetable Solution Department

(up 0.5% year on year) (Unchanged year on year)


11.5 -0.1billion yen

billion yen



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Food service business: Develop added value products, strengthen ability to provide solutions and cooperation between Kagome Group companies, and develop new customers

Tomato paste manufacturing business: Decentralize sources of raw materials, maintain processing volumes at a reasonable level, strengthen cost competitiveness, and establish cutting-edge tomato cultivation technologies based on analysis of meteorological data

Vegetable beverage business in Asia: Build brand power by strengthening sales promotions in cooperation with NISSIN FOODS (H.K.) CO., LTD.

International Business The world population is projected to reach 9.8 billion by 2050 and, amid concerns over food shortages due to population growth, demand for tomato, the most consumed vegetable in the world, is expected to increase. In this environment, the international business conducts business based on a vertically integrated business model encompassing the entire supply chain from the development of tomato seeds to agricultural production, product development, processing and sales.

In 2018, the international business posted declines in sales and profits, with net sales amounting to 39.5 billion yen, down 10.4% year on year, and operating income totaling 0.3 billion yen, down 59.9% year on year. The segment failed to reach the targets set under the First Mid-term Management Plan. The challenge facing the international business in 2019 is to complete earnings structure reform, albeit behind schedule, and to translate this into growth from 2020.


StrengthReliable quality unique to Kagome, which handles every step in tomato production, from seed to tableSolution capacity to propose dishes to food service chains in North America, Asia and EuropeGlobal primary processing network of tomatoes that is one of the largest in the world

WeaknessWeakness in terms of total cost competitiveness including logistics

High reliance on specific customers with large purchase amounts

Lack of brand recognition in the general consumer market (B-to-C)

Opportunity ThreatIncrease in damage to the growth of raw materials in various production regions caused by global climate changeStructural market slowdown due to growing competition in the expansion of primary-pro-cessed tomatoesDamage to tomato production regions caused by serious water shortages in California, which is the world’s largest production region.

Further globalization of food through the global expansion of pizza and fast food chains, etc.

Growing demand for simple cooking and takeout food due to women’s social advancement and the declining birthrate and aging population

Population growth and economic development in large tomato consumption regions such as India, the Middle East, North Africa and West Africa

We will contribute to solving

global food shortages by making

the great taste and value of

tomatoes and vegetables available

to people all over the world.

44.1

20182017

(J-GAAP) (IFRS)

39.5 40.039.4

2019(Plan)

(Unit: billion yen)

Net sales/Revenue(*)

0.8

20182017

(J-GAAP) (IFRS)

1.3

0.6

2019(Plan)

(Unit: billion yen)

Operating income/Core operating income(*)

0.3

Business Operations of International Business Division by Region

Category Products Americas Europe Australia Asia Other

B-to-B

Seeds

Primary processing (products such as tomato paste)

Secondary processing (products such as pizza sauce)

Other

B-to-C Vegetable beverages, etc.

B-to-B business U.S.-based Kagome Inc. and Kagome’s other overseas subsidiaries supply culinary sauces such as pizza sauce to global food service providers. The culinary sauces business has been growing alongside the development of its customers and now comprises nearly half of Kagome’s overall overseas sales. In the tomato paste business, Portugal-based HIT, Kagome Australia and U.S.-based Ingomar, all of which have bases in areas that produce tomatoes for processing, supply the tomato paste that results from primary tomato processing to large food manufacturers, including Kagome. Meanwhile, U.S.-based UG, which develops seeds and raises seedlings, improves crop varieties and exports seeds that meet country-specific farming conditions to more than 80 countries.

Performance of main subsidiaries Kagome Inc. posted higher sales but lower profits. While sales grew due to a strong performance in business for the food service sector and changes in the timing of shipments to Kagome Group companies, profits fell due to deterioration in production efficiency as a result of problems with newly introduced manufacturing equipment and higher logistics expenses reflecting higher oil prices. Kagome Inc. has now resumed normal production but plans to establish a more stable production system and maximize production efficiency to ensure greater earning power. HIT increased its production capacity in 2016 to expand processing volumes but posted declines in sales and profits because deterioration of market conditions due to a global oversupply of tomato paste led to excess inventories, causing selling prices to slump. To increase its earning power, HIT plans to strengthen customer profitability management and focus on inventory control by ensuring appropriate tomato processing volumes. It will also aim for expansion in areas such as added value products with high profit margins and condiments for the food service industry. Kagome Australia succeeded in expanding sales and moving into profit by implementing structural reform, shortening the harvesting season to avoid the risk of bad weather and improving productivity. By continuing to focus on other vegetable business besides tomatoes, including expanding sales of processed carrot products and developing the garlic business as a new business, Kagome Australia aims to further expand and stabilize its earnings. UG reported higher sales but lower profits. Although sales of seeds to the Middle East and Latin America increased, sales of tomato seeds for tomatoes for processing fell due to the stagnation of global demand. To increase its earning power, UG is implementing initiatives to expand sales in the U.S. and Asia and to reduce costs.

Food service business The global food service market is seeing the same home meal replacement and dining out trends as Japan, and North America, Europe and Asia account for 80% of this market growth. To meet demand in each of these regions, Kagome has started to focus on collaboration and development with leading food service companies. At the same time, by further strengthening cooperation between Kagome Group companies and combining their knowhow and resources, we aim to improve our ability to make proposals and tap into growing demand.

Creation of business through the development of tomato cultivation infrastructure Kagome has launched initiatives in Senegal and India, where economic growth is expected in the future, with the aim of contributing to local communities through agriculture. Kagome Senegal is building the infrastructure for growing tomatoes for processing using advanced cultivation technologies in the country and is working with local processing businesses to develop processing technologies. Meanwhile, KF India began manufacturing and selling processed tomato products. By helping each of these businesses to grow, Kagome aims to contribute to local communities, improving convenience through stable prices and high-quality products and contributing to economic development by creating jobs for local people.

Vegetable beverage business in Asia Under its thorough localization strategy, Kagome will work to expand the vegetable beverage business, focusing on Hong Kong. With Yasai Seikatsu 100 Original as our core product, we will develop and launch products exclusively for Hong Kong, and we will seek to create demand and build our brand through activities to convey the value of vegetables via diverse sales channels. We are also using our business in Hong Kong as a foothold for starting to expand into mainland China.

B-to-C business Kagome Nissin Foods (H.K.) started selling vegetable beverages in Hong Kong.

(down 10.4% year on year) (down 59.9% year on year)

Norito Ebata Executive Officer, Director of International Business Division, General Manager, Global Tomato Business Department

Performance trends (FY2018)*After elimination and adjustment of inter-segment transactions


39.5 0.3 billion yen

billion yen



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Innovation (Research) Below are examples of open innovation that incorporates technologies used in other industries and cutting-edge technologies into our existing businesses and new businesses, and “creation of value through the combination of goods and services.”

Kagome and the National Institute of Advanced Industrial Science and

Technology developed technology for detecting contaminants in processed

tomato products with high accuracy by utilizing artificial intelligence (AI)

In October 2017, Kagome became the first food company to sign a

comprehensive joint research agreement with the National Institute of Advanced

Industrial Science and Technology (“AIST”) and dispatch researchers to AIST. In

fiscal year 2018, Kagome and AIST succeeded in developing technology for

detecting with high accuracy contaminants, tomato skin, traces of stems, and

discoloration in processed tomato products through the utilization of an AI

algorithm* developed by AIST. In a performance assessment of this technology,

the technology successfully detected without omission all the detection targets

contained in 500 sample images. Kagome aims to put this technology into

practical use at all its production plants by fiscal year 2020.

To increase vegetable consumption, it is important to determine current

vegetable intake. However, determining vegetable intake has previously been

troublesome, costly and time-consuming, requiring collection of a blood sample

to measure carotenoid concentrations in the blood. In 2017, Kagome teamed up

with German firm biozoom services to jointly develop a measuring device that can

determine the level of vegetable intake quickly and easily by optically measuring

skin carotenoid levels, etc. From the summer of 2019, Kagome plans to sell and

lease this measuring device and offer health services utilizing this device to

companies practicing health and productivity management and local governments

seeking to strengthen health promotion measures. By using this measuring device

to make service users more aware of their vegetable intake and delivering

seminars on creative ways to eat more vegetables, Kagome will help increase

vegetable intake and support health promotion and the implementation of health

and productivity management.

(1) Example of open innovation

(2) Example of combining goods and services

Policy of Innovation Division

Descriptions of each research project

Promotion of Open Innovation to Help Resolve Social Issues

Recent research findings

We will contribute to the sustainable growth of the Kagome Group by focusing on research issues for the “resolution of social issues using the power of vegetables” and translating these research findings into business.

In an age of rapid technological advancements and dramatic

market changes, we will create sustainable value and

differentiate ourselves from our competitors by more actively

promoting open innovation research, incorporating the

technologies of other industries and cutting-edge technologies

rather than simply relying on our own technologies. The value

we offer is also shifting away from the provision of products

(goods) toward the systemized provision of value through

experiences that span all Kagome’s operations (services), and

the Innovation Division will contribute to business growth by

promoting the “creation of value through the combination of

goods and services.”

We are accumulating tomato genetic resources, developing new varieties and researching cultivation technologies. In fiscal year 2018, we applied to the Plant Variety Registration for a total of four varieties, including a great-tasting fresh tomato variety. We are also expanding and promoting research in the area of vegetables for transforming to a “vegetable company.”

(1) Research into variety and agricultural technologies

We are conducting activities to enhance product value by developing new ingredients that maximize the original flavors, properties, nutritional value and functions of tomatoes and vegetables and developing more sophisticated processing technologies. Especially in this field, we are actively pursuing technical cooperation with other companies instead of confining ourselves to technologies developed in-house.

(2) Research into ingredient and processing technologies

We are conducting functionality research, primarily into green and yellow vegetables, registering foods with functional claims and disseminating health-related information. In fiscal year 2018, we demonstrated the effect of developed tomato varieties in controlling the contraction of blood vessels and lowering high blood pressure and this led to the release of “GABA Select,” a food with functional claims for “a person who suffers with high blood pressure.”

(3) Functionality research

To deliver safe, reliable products to our customers, we are strengthening “basic technologies for assuring safety throughout the supply chain starting in the fields,” including conducting activities to predict risk, acquire analysis and evaluation technologies and assess the safety of raw materials.

(4) Assessment of product quality and safety

To maintain stable competitiveness, we are reinforcing the foundation for our intellectual property (acquisition, protection, and prevention of obstruction and litigation) through invention and discovery as a result of in-house research and development and periodical searches of other companies’ patents.

(5) Protection and use of intellectual property

The Innovation Division is increasing its focus on research themes that are meaningful for Kagome’s transformation to a “vegetable company,” in anticipation of changes in social conditions and advances in technology 10 or 20 years from now. The division is committed to open innovation, searching far and wide, both inside and outside the company, for the resources it needs, and it develops researchers with a forward-looking attitude, who learn from mistakes and continue taking on new challenges. The Innovation Division will conduct its research activities based on an acute awareness of the need to link its research findings to the resolution of social issues and to Kagome’s business.

Message from the Director of Innovation Division

Detection of tomato fruit discoloration

Detection of hair

Measuring device for determining vegetable intake

Hiroyuki Ueda Director of Innovation Division

Apr. 2018

We confirmed that the indicator for reducing salt intake (urinary sodium-to-potassium ratio) improves significantly as a result of consumption of a tomato low-salt diet(joint research with Kagawa Nutrition University; Journal of Japanese Society of Shokuiku, Volume 12, Issue 2)

May 2018

We confirmed that the structure of lycopene, which is found in tomatoes, changes when lycopene is heated with garlic, onion and oil, improving lycopene bioavailability(joint research with Nagoya University; announced at the 83rd annual meeting of The Society of Chemical Engineers, Japan)

We announced new research findings relating to rises in blood glucose levels in a human study(1) Drinking mixed vegetable and fruit juice before a meal is

effective in inhibiting a postprandial blood glucose level rise

(2) The sugar contained in vegetable juice is absorbed into the blood more slowly than regular sugar

(Announced at the 6th Academic Conference of the Japanese Society of Shokuiku)

Nov. 2018

We developed high precision technology for the detection of contaminants in processed tomato products utilizing artificial intelligence (AI)(joint research with Kagawa Nutrition University; Journal of Japanese Society of Shokuiku, Volume 12, Issue 2)

Mar. 2019

We developed a device that can determine a person’s vegetable intake simply by placing the palm of his or her hand on the device- Proposal of health promotion support tool for businesses practicing health and productivity management and local governments -(Device that determines vegetable intake by optically measuring the skin’s carotenoid level, etc.; jointly developed with German company biozoom services)

*An AI algorithm is a set of rules given to an artificial intelligence program to help it process information. In this research, we enhance detection accuracy by conducting an experiment in which we use an AI algorithm developed by AIST to identify detection targets.


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KBMP#１a)b)

c)d)e)f)

a)b)

c)

d)

Magnet inspectionX-ray inspection and metal detector inspectionFilter inspectionCleaningMaintenance5S activities (Seiri (Sort), Seiton (Set), Seiso (Shine), Seiketsu (Standardize), and Shitsuke (Sustain))

KBMP#2Response to quality failuresChange point management and validation of production lineInspection of equipment before, during and after productionManagement of equipment in aseptic filling system

a)b)

Flow of product development and design Evaluation of new raw materials

KBMP#3 (To be introduced during 2019)

Design Selection of raw materials Production Shipping Sale

KBMP#1

KBMP#2

KBMP#3

etc.etc.

etc.

Product Safety and Security Fulfilling our Brand Promise

Kagome has established a Quality and Environmental Policy based on the belief that quality and environment are two

sides of the same coin, in accordance with Kagome’s corporate philosophy and its brand statement “True to Nature,

the Flavor of Kagome.” In line with this policy, we are focusing on quality assurance and environmental preservation

in every process of the supply chain.

Kagome has always conducted manufacturing that uses

nature’s bounty, beginning from the development of vegetable

seeds and soil to procure high quality raw materials, based on

the idea that “fields are the primary production plant.”

Achieving both the preservation of the global environment and

nature-based manufacturing is vital for maintaining the growth

of Kagome’s business activities in the future.

Because of such commonality and activity relevance

between quality (manufacturing) and the environmental

philosophy, we combined our Quality Policy and Environment

Policy, which had been separate in the past, into one and

established the Quality and Environmental Policy in October

2017. This Quality and Environmental Policy represents the

determination of Kagome’s management team to aim to

achieve a sustainable society by focusing on environmental

protection with the same passion that Kagome has maintained

in its manufacturing activities.

Kagome is working to raise the level of quality assurance by establishing a unique quality assurance model for its overseas Group

companies that embodies “Quality First, Profit Second.”

Since 2003, we have been endeavoring to raise quality by applying a quality management system based on ISO 9001 across all

our activities from design and development to procurement, production and sale. In addition to traditional quality management, we

have also been working to acquire FSSC 22000 certification since fiscal year 2016. FSSC 22000 is an international standard for

food safety that includes management methods for preventing hazards in manufacturing processes and outsourcing operations,

food defense, and food fraud prevention. We are expecting to complete the certification of all six of our factories in Japan by fiscal

year 2019. Kagome’s major overseas subsidiaries overseas are also endeavoring to enhance their food safety management systems

by acquiring FSSC 22000 certification or similar certification.

(1) Approach to quality and the environment (3) Strengthening competitiveness of overseas Group companies by improving quality

(2) Enhancement of quality assurance systems in Japan

In the past, there were discrepancies between the level of quality management at overseas Group companies depending on the laws and regulations, business practices and level of customer requirements in each country. To tackle this issue, we established the Global Quality Assurance Department in 2016 and, based on quality management expertise developed by Kagome in Japan, we have established a common global quality management standard known as Kagome Best Manufacturing Practice (KBMP), and are conducting quality assurance activities at each company using this standard. We are also focusing on making a cross-sectional assessment of information relating to quality, the environment and technology at overseas Group companies and sharing and utilizing this information to improve the level of quality assurance and productivity. As Stage 1 of KBMP, the Global Quality Assurance Department has been sharing the KBMP approach to quality management in the production environment, such as the prevention of contamination, with Group companies. In Stage 2, we will establish common rules for responding quickly in the event of quality failures and, in Stage 3, we will conduct activities to prevent quality failures caused by product design by presenting steps for the design of new products and the selection of raw materials.

In this way, we will gradually broaden the scope of operations covered by the quality assurance system, from upstream to downstream processes, and endeavor to improve the level of quality assurance in every process.

As a result of the activities of the Global Quality Assurance Department, each Group company’s rate of compliance with KBMP has risen year by year, leading to a reduction in losses due to quality-related problems. Other activities to improve quality in production environment include regularly organizing Group joint meetings with the CEO and the managers of production, quality management and quality assurance of each company, highlighting examples of improvements in quality at each company and conducting observations of production environments. Through these activities, we point out strengths and weaknesses to each other and make improvements. We have also strengthened promotion of 5S activities to develop a quality mindset in employees. Every company now understands the purpose of the 5S and voluntarily conducts 5S activities.

We contribute to the longevity and good health of people, which is important to us by providing the flavor and health value of vegetables.

Examples of improvement through 5S activities (Kagome Australia)

We grow safe agricultural raw materials consistently from seeds and fields by collaborating with our partners in Japan and abroad.

We protect water, soil and air that nurture vegetables, maintain agriculture that fosters rich nature for the future, and effectively use the benefits acquired.

We apply customers’ feedback to our corporate activities while communicating the reliability of our products and services.

We deliver safe, environmentally-friendly products by complying with laws, regulations and in-house standards and continuing to improve our systems and activities.

1

2

3

5

4

Quality and Environmental Policy

Acquisition of FSSC 22000 certification

Expansion of KBMP, Kagome’s common global quality management standard

Fourth Production and QA Meeting held at Kagome Australia

Structure of FSSC 22000 standard

Timing Plants and production lines subject to certification

Oct. 2017Ueno Plant: kneader mixing to general-use filling lineKozakai Plant: 500 g tube lineFujimi Plant: PET line

Jun. 2018 Komaki Plant: all lines, Ibaraki Plant: film line

Sep. 2018 Nasu Plant: raw tomato processing to Tetra Pack® filling line

Oct. 2018 Ueno Plant, Kozakai Plant and Fujimi Plant: all lines

Sep. 2019 (Plan) Ibaraki Plant and Nasu Plant: all lines

ISO9001 (Management system covering all quality-related processes within an organization)

HACCP (Control of food safety hazards in food products)

Prevention of insects and rats, facilities, utility management, prevention of cross-contamination, control of personal hygiene of employees

ISO22000

Food defense, food fraud prevention, control of allergens, etc.

Additional requirements

PRP (Control of hygiene conditions in production environment, prerequisite program)

ISO/TS22002-1+

+

Global quality assurance system

Activities to improve quality in production environment


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Approach to Environmental PreservationProtecting water, soil and air that nurture vegetables

For Kagome, which has been contributing to people’s health using nature’s bounty, it is essential to maintain a

sustainable agricultural business in a rich natural environment for continuing to enjoy the bounty of nature. Achieving

both the preservation of the global environment and nature-based manufacturing is vital for maintaining the growth of

Kagome’s business activities into the future.

In fiscal year 2019, Kagome made a start on analysis of climate change scenarios as recommended by the Task Force on

Climate-related Financial Disclosures (TCFD). We recognize that responding to climate change is a high-priority issue among the

important issues (materiality) we identified based on our own internal examination and we have identified risks and opportunities

based on the assumption of multiple scenarios for global warming and more frequent extreme weather events. The table below

shows some of the identified risks and opportunities. We plan to continue examining countermeasures, taking the financial impacts

of these risks and opportunities into consideration, and to reflect our analysis results in concrete business plans.

As a company that uses large amounts of water in the cultivation and processing stages, Kagome is implementing measures

tailored to each region to mitigate water-related risks.

In order to continue to sustainably enjoy nature’s bounty, Kagome aims to achieve a peaceful coexistence with a diverse array of

living creatures, primarily by reducing impact on biodiversity in its agricultural practices.

(1) Prevention of global warming

(2) Preservation of water

(3) Protection of biodiversity

Transition risks

Government policies, laws and regulations

Introduction of carbon tax

Tightening of relevant laws and regulations regarding waste recycling, energy conservation and reduction of CO2

Market Sales decline due to unseasonable weather in summer (extremely low or high temperatures, etc.)

Physical risks Acute

Decreased procurement volumes and increased procurement cost of agricultural raw materials due to unseasonable weather in production areas

Damage to production equipment and suspension of product supply due to extreme weather events (severe typhoon, flooding, inundation, weather that makes it difficult for employees to come to work)

Opportunities

Resource efficiency

Improvement in efficiency of distribution process through the establishment of logistics company F-LINE

Products and services

Development and sale of heat and disease resistant tomato varieties

Development of a tomato cultivation system with minimal water use

Adaptation to abnormal weather events through the development of a global tomato procurement network

Creation and expansion of market for vegetable-related products as emergency stockpile

Category Type Details

Plants Logistics

In line with the Paris Agreement objective of keeping global warming below 2°C, Kagome has set goals of reducing the

entire Group’s CO2 emissions by at least 20% by 2030 and at least 50% by 2050 (compared to emissions in 2016).

We will reach our mid- to long-term CO2 reduction targets through energy-saving activities and the use of renewable energy. At our overseas factor ies , we are promoting solar power generation and we introduced solar power generation at Kagome Inc. in the U.S. in 2017. We also plan to introduce solar power generation at Kagome Australia in 2019.

In April 2019, we made the full-scale transition from our own delivery system to joint delivery using F-LINE, a logistics company jointly established by five food companies including Kagome. This has improved our transport efficiency and is helping to reduce our CO2 emissions.

The majority of Scope 3 CO2 emissions relate to purchased raw materials and production, and therefore Kagome will set

its suppliers reduction targets by 2021 and endeavor to reduce CO2 emissions in collaboration with suppliers from 2022.

Scope 1 and Scope 2

Scope 3

20502016(Base year)

2030

16

13

20%50%

8

(in 10,000 tons)

Water usageWater usage at domestic plants

2013 2014 2015 2016 2017 (fiscal year)

(kilotons)

0

1,000

2,000

3,000

4,000

5,000

2018

20%

3,6203,620 3,5023,502 3,4233,423 3,2963,2962,8792,8793,0613,061

In surveys of tomato and carrot processing locations at

Kagome Group companies and major suppliers, we found

risks at locations in Australia (drought and heavy rain risks),

the U.S., Turkey, Chile and China (drought risks). In order to

combat these risks, we have launched initiatives that include

reducing drought risks by making use of water stored during

rainy seasons in dry periods, and avoiding periods at high risk

of heavy rainfall when cultivating crops.

The Kagome Group and its major suppliers understand water-related risks.1

The Kagome Group and its major suppliers strive to reduce water intake and use water efficiently to protect local water resources.

2

The Kagome Group and its major suppliers clean used water before returning it to the local communities.3

Factories in areas where water-related risks are high take measures for water that are appropriate for the local areas.

4

Kagome Group Water Policy

The Kagome Group draws water from various sources. In

the U.S. and Australia we use tap water supplies. In Portugal,

Italy and Japan we use well water, and in Taiwan we use a

combination of both. The Kagome Group is working to reduce

water usage, and has set targets of reducing water usage per

unit produce by 1% each year, and by 3% overall between

2019 and 2021. At our domestic plants, we have reduced

water usage (total volume) by 20% over a five year period

(2013 through 2018).

Reducing water usage

Kagome is engaged in various activities in line with its

biodiversity policy, which was established in fiscal year 2018,

based on an assessment of the current situation with regard

to biodiversity and the Group’s business operations.

Maintaining genetic resources (7,500 tomato varieties) Environmentally conscious use of agrichemicals and fertilizers for sustainable farming

Biodiversity surveys of tomato fields and their surrounding areas Avoiding the use of nonindigenous species of bees for pollination in the cultivation of fresh tomatoes

Promoting agricultural development in Japan (e.g. introducing examples of regional agricultural produce through direct marketing services such as Noen Oen (Local Obscure Farms Support))

As a result of biodiversity surveys of open-air cultivation tomato fields operated by contracted farmers conducted in fiscal year 2012 regarding the actual state of biodiversity in those fields, we were able to confirm the presence of many living creatures; and found that assessment indicators for biological surveys—animal life such as frogs and spiders—were being maintained in an almost completely unaffected state. In July 2018, we also conducted biodiversity surveys of open-air cultivation tomato fields and their surrounding areas in Ibaraki prefecture. Moving forward, we will continue to conduct surveys to ascertain the risks and opportunities to biodiversity posed by tomato growing using different methods of cultivation in various regions, and work to achieve tomato cultivation that will help to enrich the natural environment.

Biodiversity surveys of tomato fields

Case studies

Relationship between the content of this Integrated Report and the SDGs

Business risks and opportunities

Establishing mid- to long-term CO2 reduction targets

Content of this Integrated Report Target No. Details (Summary)

(1) Prevention of global warming (Establishing mid- to long-term reduction targets)

13.3 Climate change mitigation and adaptation

(2) Conservation of water (understanding water-related risks, taking action to address them, and reducing water usage)

6.4Increase water-use efficiency and address water scarcity


(3) Protection of biodiversity (agricultural development, protection of biodiversity, response to invasive alien species)

11.aSupport positive links between urban, peri-urban and rural areas

15.5 Halt the loss of biodiversity

15.8 Prevent the introduction of invasive alien species

Identifying and combating water-related risks

Conservation activities in line with the Kagome Group Biodiversity Policy

Details of activities


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Sustainable Procurement Bolstering our foundation for manufacturing products, starting from the fields

Kagome has built a global pool of human resources and management system to enable management of fields, as it

seeks to avoid risks such as climate change and foreign exchange rate fluctuations and to optimize costs and

suppliers. We also engage in procurement activities with respect for an equal and fair cooperation framework

enabling us to grow together.

Contract farming of tomatoes for processing was started by our founder. It is a system by which we secure high-quality raw ingredients through collaborative partnerships between producers and processors, and is the starting point for our procurement activities. Procurement in Japan is almost exclusively through contract farming. Overseas, we engage in purchasing transactions with local suppliers, based on our basic policies of establishing long-term transactions, ensuring appropriate pricing, and conducting on-site checks. We are also bolstering our network of procurement locations for other ingredients aside from tomatoes, with a view to achieving our vision of transforming into a “vegetable company.”

Thinking on Procurement Activities and Initiatives for Creating Opportunities

Kagome Australia was established in June 2010, through a transfer of business operations from a local company engaged in farm management and ingredient processing activities, primarily for producing tomatoes for processing. One of the objectives of its establishment was to stabilize procurement by dispersal of ingredient procurement locations across various latitudes from north to south. With increasing needs for carrots as a raw ingredient in Japan, in 2014, Kagome Australia commenced trials for the growing and processing of carrots for the Japanese market. Since then, the company has worked to improve quality and costs to match Japanese requirements. As of 2018, the operation shifted to full-scale transactions for carrots, providing a valuable procurement source for carrots as a raw ingredients. In 2011, 92% of Kagome Australia’s sales were accounted for by tomato growing and processing business. In 2018, this percentage decreased to around 51%, with secondary processed tomato products for the food service market, as well as cultivation and sale of carrots, apples, garlic and other ingredients also contributing. In this way, Kagome Australia is growing steadily as a procurement location contributing towards Kagome’s vision of transforming to a “vegetable company.”

Kagome’s advantage in procurement lies in its knowledge and expertise in areas such as production, quality and cost structure, gained through the fact that Kagome engages in all aspects of its business, from growing to processing of raw ingredients into products. By clearly communicating its expectations in these areas to suppliers, Kagome is able to establish mid- to long-term transactions at appropriate prices, enabling selection of suppliers who can work together with Kagome to improve quality.

For products and raw materials procured from overseas producers and processers of agricultural produce, as a general rule, Kagome personnel visit the suppliers to check the status of quality management in their operations from growing to production processes. We also hold advance meetings with suppliers annually and prior to the production season with regard to their main products and raw ingredients for import. Together with suppliers, we consider issues in the overall supply chain process, from the fields to the factories. These considerations include not only production processes in which harvested agricultural produce is processed, but also aspects of growing methods used by contracted farmers, such as the number of agrichemicals applied and optimal use of fertilizers. In this way, we guarantee the production of better quality products and raw ingredients. After the end of each season, we conduct reviews of the season and identify issues for the next fiscal year, and set targets that will enable us to continue growing together.

Selection of suppliers

Sharing of information with suppliers

Kagome Australia’s sales breakdown

51%

92% 13%

18%

6%12%8%

2011 2018

Net sales: 36 million Australian dollars

Net sales: 83.78 million Australian dollars

Tomato growing and processing business

Food services Garlic and corn growing Processing of apples, etc.

Carrot growing and processing business

A meeting with suppliers

Conducting checks in a field

Human Resources Underpinning the Creation of ValueWork Style Reforms and Diversity

In today’s rapidly-changing world, Kagome believes that in

order to achieve sustainable growth it is important to provide

a working environment in which each and every individual

employee can make maximum use of their diverse strengths

and abilities, and feel a sense of job satisfaction.

Since 2014, Kagome has worked to implement work style reforms with the aim of creating a company where it is easy to work, and where employees feel a sense of job satisfaction.

Understanding of the importance of promoting diversity within the company has improved, and disparities in ease of working for male and female employees have been almost completely eliminated.

(1) Promoting Work Style Reforms

(2) Promoting Diversity

We launched our program of work style reforms in fiscal year 2014, and have advanced to the second phase of these reforms from fiscal year 2018. We have launched initiatives towards achieving our target of total annual working hours of 1,800 by 2020, and are investing efforts into building a culture for increasing job performance with eight-hour days. As a measure for reducing the constraints of working hours and locations, in April 2018 we introduced a staggered working hour system and a regional card system that enables employees to choose where they work. From April 2019, we have been testing a flextime system, and have also introduced a telecommuting system. By increasing the level of freedom for employees with regard to work styles, and by enabling them to devise their own ways of working, we aim to improve productivity with greater autonomy.

In April 2019, Kagome established Veggie Kids Nursery, which teaches children to love vegetables, near its Tokyo head office in Chuo-ku, Tokyo. The objective of establishing this nursery was to help create an environment in which employees can work with peace of mind during their child raising years, without feeling anxious about balancing their career and work with raising their children. The idea for the nursery came from a Kagome employee who was also a working mother herself, in response to an open call for new project ideas.

Kagome’s work style reforms have also promoted lifestyle reforms. In April 2019, we introduced a secondary job scheme, hoping to support the formation of employees’ careers and having a positive impact on their work at Kagome. Although only several employees had made use of this scheme as of June 2019, some of the employees are utilizing the scheme to make use of their own qualifications in activities outside of their work at Kagome. Examples of such qualifications include Small and Medium Enterprise Management Consultant, Labor and Social Security Attorney, and Registered Dietitian.

Over the past three years, Kagome has made mostly steady progress in tackling issues such as recruitment, continuous employment, and employee development and promotion, working under its long-term vision of achieving a state where 50% of its workforce consists of women. Over the next three years, in addition to continuing to tackle these issues, we will also work to enhance our systems for mutual learning and development, and initiatives aimed at younger employees, as we seek to further increase the pace of our efforts in promoting active participation and advancement for women in the workplace.

2016 2017 2018 2020

1,990 1,980 1,929(Target)1,800

Total annual working hours

(fiscal year)

Change in total annual working hours

Act on Promotion of Women’s Participation and Advancement in the Workplace: Kagome’s Action Plan figures

Target 1To hire new employees, of whom 50% or more are female employees

60%(Actual result for FY2018)

Target 2

To maintain the continuous employment percentage of female employees hired before the 2009-2011 fiscal years at least 80% of that of male employees

0.81(Actual result for FY2018)

Target 3 To ensure that female employees make up at least 8% of managerial positions (Manager and above)

5.6%(As of April 1, 2019)

Supply Chain Management Initiatives

Case studies of initiatives for developing procurement locations with a view to transforming to a “vegetable company”


(2) Promoting Diversity 5.5Ensuring participation and equal leadership opportunities for female employees


Efforts to achieve total annual working hours of 1,800

Secondary job scheme: hopes for creating greater motivation for employees’ main job at Kagome

Promoting active roles for women

Establishment of Veggie Kids Nursery, which teaches children to love vegetables


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Collaborating with CommunitiesResolving social issues through food

Kagome aims to grow by creating a sustainable society through working to resolve social issues in collaboration with local communities, with a view to achieving its vision (“What Kagome Strives For”).

At Kagome, we believe that in order to maintain a sound and healthy company, it is important to ensure that each individual employee is also healthy, both physically and mentally. We are therefore working proactively to manage the health of our employees.In 2017, we established Kagome’s 7 Points for Good Health, and made the Kagome Health and Productivity Management Pledge. We have been recognized externally, for three consecutive years since 2017, under the Certified Health and Productivity Management Organization (White 500) program operated by the Ministry of Economy, Trade and Industry (METI) and Nippon Kenko Kaigi. In November 2017, we were also given the highest rank by the Development Bank of Japan (DBJ) under its DBJ Employees’ Health Management Rated Loan Program.

In addition to its products, Kagome is working to enable people to live longer, healthier lives through the simultaneous provision of information and services, such as guidance for improving dietary lifestyles, and dietary education for children.

Strengthening ties with local regions through agriculture is essential to the growth of Kagome’s business.

(3) Promoting health and productivity management

(1) Initiatives to Enable Longer, Healthier Lives

(2) Initiatives Aimed at Agricultural Development and Regional Revitalization

In 2016, we established the General Health Services Department of Kagome Axis Co., Ltd. We have appointed industrial doctors to all business locations, and are promoting health management together with public health nurses and industrial counselors. In fiscal year 2018 we launched a Health Promotion Committee, and are engaging in health improvement activities with a focus on independent initiatives driven by each business location. We are also working to identify issues relating to employee health, and implement health-related measures and initiatives, such as by holding regular Collaborative Health Promotion Meetings together with the Kagome Health Insurance Union. We also hold Kagome Health Meetings, at which industrial doctors from major business locations, other industrial health staff, Kagome corporate officers responsible for health issues, and members of the General Affairs and Health Services Department and Kagome Health Insurance Union assemble to share and discuss group-wide health-related initiatives.

Kagome proposed its Kagome Good Health Support Program for the “lively and active workplace support program” segment of the Longevity and Good Health Fukushima Promotion Project, run by Fukushima Prefecture in fiscal years 2017 and 2018. The proposal was successfully adopted. Kagome’s team of registered dietitians (Vegetables and Lifestyle: Dietitians’ Labo) supported efforts to improve the health of employees at companies in Fukushima Prefecture by running dietary lifestyle improvement seminars and other activities.

In April 2019, Kagome opened the Kagome Yasai Seikatsu Farm Fujimi vegetable theme park at Fujimi, in the Suwa District of Nagano Prefecture. With the majestic natural scenery of Yatsugatake as a backdrop, the facility enables visitors to experience harvesting and cooking vegetables, to enjoy meals prepared using fresh seasonal vegetables in the restaurant, and to observe manufacturing processes for vegetable juices produced at the neighboring Fujimi Plant. As a flagship facility for visitors to experience the “vegetable company” vision that Kagome aims to achieve, Kagome Yasai Seikatsu Farm Fujimi is drawing attention as a tourist attraction that carries the hopes of both Fujimi and Nagano Prefecture as a whole. At Yatsugatake Mirai Farm, a location within the facility for growing fresh tomatoes, Kagome actively promotes the employment of people with disabilities, and seeks to achieve a collaborative link between agriculture and welfare.

In April 2017, Kagome launched an agri-support business offering guidance on starting up and operating farms and technical advice on tomato cultivation, aimed at tomato producers. This business leverages the know-how accumulated through Kagome’s experience over 20 years in the fresh tomato business.

The collaborative child-raising project Oishii! (“Delicious”) Vegetable Challenge Program was launched in April 2018 in collaboration with Houkago NPO After School, with the aim of overcoming children’s dislike of vegetables. As of December 31, 2018, the program was implemented at 20 schools in the Kanto region, with 854 children participating. In the program, hands-on dietary education lessons were conducted in which children used their senses to engage in various experiences, based on the theme of “the sense of accomplishment of being able to eat vegetables.” In fiscal year 2019, the program will be expanded to a nationwide scale, with 50 locations across Japan.

In addition to promoting and implementing initiatives based on Kagome’s 7 Points for Good Health, Kagome also implements its own unique health checkups (Kagome Kenshin) in collaboration with the Kagome Health Insurance Union, and carries our regular dental checkups, influenza vaccinations and walking campaigns every year. We also encourage and support employees aged 30 or above, and their spouses, to undergo annual comprehensive medical examinations.

Kagome has established contact desks for mental health issues at all of its business locations in Japan. Industrial counselors and other professionals collaborate with these contact desks and travel around the country visiting all business locations every year. During these tours, professionals engage in monitoring and ascertaining the current situation, share information with the health management desk at head office, offer support and follow-up for employees returning to work after periods of absence, work to identify employees with poor mental health at an early stage, and help to create an environment where employees feel that they can easily consult with someone regarding their mental health. Additionally, Kagome also runs annual mental health training seminars for new employees and management personnel.

In order to maintain the physical and mental health of each of our employees, we consider it necessary to visualize and share employees’ state of health, and to help them to acquire correct health-related knowledge. In fiscal year 2017, we began publishing the Kagome Health Report, and holding health seminars for employees run by registered dietitians and public health nurses. In fiscal year 2018, we also started e-learning study programs (physical health edition and mental health edition) for all employees.

FY2016 FY2017 FY2018

Percentage of employees taking health checkups 100 100 100

Percentage of employees taking reexaminations 95.9 100 100

Percentage of employees receiving specific health guidance 2.2 50.3 58.2

FY2016 FY2017 FY2018

Examination rate 94.4 96.6 92.0

Situation regarding health checkups (as of March 31)

Current situation with regard to stress checks

(%)

*The method used for performing checks was changed in FY2018.

Kagome’s 7 Points for Good Health

Framework for promoting health and productivity management

Proposing dietary lifestyle improvements in the health service business

Activities to eradicate children’s dislike of vegetables

Kagome Yasai Seikatsu Farm Fujimi opened

Agri-support business utilizing expertise in growing fresh tomatoes

Kagome Health and Productivity Management Pledge

The health of employees links directly to feelings of

job satisfaction, through improving their sense of

pride and engagement at Kagome.

Kagome contributes to the health of its customers

through food, while at the same time promoting

health and productivity management based around

the core of Kagome’s 7 Points for Good Health.

Current situation with regard to health management

1. Nutritional balance, eat 350g of vegetables a day

2. Feel fresh and cleansed every day, drink Labre

3. Sleep well, greet people, and enjoy a fun lifestyle

4. Take appropriate exercise, walk 8,000 steps a day

5. Develop habits of brushing teeth, gargling and washing hands

6. Don’t drink too much alcohol, and avoid smoking

7. Take regular health checkups and manage your own health

Current situation with regard to mental health

Improving employees’ health literacy

(%)


Content of this Integrated Report

Target No. Details (Summary)

(2) Initiatives Aimed at Agricultural Development and Regional Revitalization

4.4Increase in the percentage of young people and adults with technical and vocational skills

8.9Tourism business leading to creation of jobs, promotion of regional culture and sales of regional produce


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Kagome’s Management

Directors

①

②

⑤ ④

③

⑧

⑩

⑦ ⑪

⑥⑨

He has extensive experience in institutional & industrial business and research departments, and oversees Kagome’s vegetable business and promotes the development of business models for the vegetable processing business, etc.

He has extensive experience in marketing and sales departments, etc., and oversees Kagome’s sales departments and promotes raising the value of sales activities, etc.

He has extensive experience in the production and purchasing department, the management of subsidiaries, etc., and oversees Kagome’s vegetable processing business projects and promotes business development for the realization of the company’s long-term vision.

③ Katsuyuki MiwaDirector & Senior Managing Executive Officer

1979 Joined the Company2005 President & Representative Director of Kagome Labio

Co., Ltd. 20102010 Executive Officer of the Company2010 General Manager, Production Department, Production &

Purchasing Division2013 Managing Executive Officer2013 Director, Production & Purchasing Division2013 Director & Managing Executive Officer2016 Director & Senior Managing Executive Officer (to present)2017 Assistant to President and Responsible for Special

Assignment Projects (to present)

1983 Joined the Company2003 General Manager, Institutional & Industrial Business Unit2010 Executive Officer2010 Director, Institutional & Industrial Business Division 2015 Director, Innovation Division 2018 Director, Vegetable Business Division and General

Manager, Vegetable Solution Department (to present)2019 Director & Managing Executive Officer (to present)

1984 Joined the Company2005 General Manager, Taiwan Kagome Co., Ltd.2006 General Manager, Probiotics Business Unit (responsible

for marketing)2009 General Manager, Consumer Sales Department, Osaka

Branch2014 Executive Officer2014 Director, Consumer Business Division2015 Managing Executive Officer2015 Director, Marketing Division 2018 Director, Sales Division (to present)2019 Director & Managing Executive Officer (to present)

⑤ Satoshi Yamaguchi ④ Hirohisa KobayashiDirector & Managing Executive OfficerDirector, Vegetable Business Division and General Manager, Vegetable Solution Department

Director & Managing Executive OfficerDirector, Sales Division

(Born August 5, 1955) (Born July 16, 1961) (Born December 29, 1960)

1978 Joined the Company2004 General Manager, Sales Promotion Department2005 Director & Executive Officer2006 General Manager, Tokyo Sales Office2008 Director & Managing Executive Officer2008 Director, Consumer Business Division2010 Director & Senior Managing Executive Officer2010 Sales Division Director2013 Representative Director & Senior Managing Executive

Officer2014 President & Representative Director (to present)

1982 Joined The Nippon Credit Bank, Ltd. (now Aozora Bank, Ltd.) 1998 Joined Cerberus Japan K.K.2003 Joined Industrial Revitalization Corporation of Japan2007 Joined the Company; Special Adviser2008 Executive Officer2009 Director, Corporate Planning Division

Director & Executive Officer2016 Director & Senior Managing Executive Officer (to present)2017 Assistant to President and Responsible for Special

Assignment Projects (to present)2018 Responsible for Global Industrial and Institutional Business

(to present)

① Naoyuki Terada President & Representative Director

He has extensive experience in marketing and sales departments, etc., and is leading the Kagome Group’s business through his strong leadership toward the achievement of the Mid-Term Management Plan.

He has extensive experience in a financial institution and the corporate planning department, etc. of Kagome, and oversees all operational stan-dards and the quantification of results and promotes the optimization of management resource allocation and work style reforms.

② Yoshihide Watanabe Director & Senior Managing Executive Officer

Remuneration and Nomination Advisory Committee Member

(Born February 5, 1955) (Born March 4, 1958)

She has extensive knowledge of food science and food education through numerous research activities related to food science and many years of educational activities on food and nutrition.

He has extensive knowledge of diversity promotion and risk manage-ment in business as a manager of a highly diversified global company.

He has extensive experience in overseas assignments of central govern-ment ministries and agencies and knowledge of the economy, as exem-plified by his participation in the formulation of the OECD Principles of Corporate Governance.

⑥ Seiichi Kondo External Director

1972 Joined the Ministry of Foreign Affairs of Japan1999 Deputy Secretary-General, Organization for Economic

Co-operation and Development2006 Ambassador Extraordinary and Plenipotentiary to

Permanent Delegation of Japan to the United Nations Educational, Scientific and Cultural Organization

2008 Ambassador of Japan to the Kingdom of Denmark2010 Commissioner for Cultural Affairs2014 External Director of the Company (to present)

[Significant concurrent positions]Outside Director of JXTG Holdings, Inc.

1978 Joined IBM Japan, Ltd.2008 Director & Senior Executive Officer General Manager, Sales, IBM Japan2009 General Manager, IBM Japan2014 External Director of the Company (to present)

[Significant concurrent positions]Honorary Advisor, IBM JapanOutside Auditor, IHI CorporationOutside Member of the Board, Mitsubishi Chemical Holdings CorporationOutside Director, CHUBU Electric Power Co., Inc.

⑦ Takayuki Hashimoto External Director

1981 Joined Mitsubishi Electric Corporation1996 Completed the Doctoral Program at Graduate School of

Ochanomizu University, obtained a doctorate (Doctor of Philosophy in Food Science)

1997 Part-time lecturer at Fukushima University, The Open University of Japan, Nippon Veterinary and Animal Science University (now Nippon Veterinary and Life Science University)

1999 Part-time lecturer at Mejiro University College2015 Visiting professor at Nippon Veterinary and Life Science

University (to present)2017 External Director of the Company (to present)

[Significant concurrent positions]Visiting professor at Nippon Veterinary and Life Science University

⑧ Hidemi SatoExternal Director

Independent(Born March 24, 1946) (Born July 9, 1954) (Born February 17, 1959)Independent Independent

Remuneration and Nomination Advisory Committee Member Remuneration and Nomination Advisory Committee Member

As a lawyer, he is well-versed in corporate legal affairs and risk management practices, and has extensive insight to oversee corporate management.

He has extensive experience in corporate planning, R&D departments, management of subsidiaries, etc., and properly supervises the execution of Kagome’s business as an Audit and Supervisory Committee Member.

He is proficient in corporate accounting as a certified public accountant and tax accountant, and has extensive insight for overseeing corporate management based on his experience in corporate management, etc.

1970 Joined Arthur Young & Co. Tokyo Office1974 Registered as Certified Public Accountant2002 Representative of Asahi KPMG Tax Corporation2006 Representative of Murata Morihiro Accounting Firm (to

present)2011 External Auditor of the Company2016 External Director, Audit and Supervisory Committee

Member of the Company (to present)[Significant concurrent positions]

[Significant concurrent positions]Representative of Murata Morihiro Accounting FirmOutside Audit & Supervisory Board Member of Kokuyo Co., Ltd.Outside Auditor of Sumitomo Rubber Industries, Ltd.

⑩ Morihiro MurataExternal Director, Audit and Supervisory Committee Member

1981 Joined the Company2003 General Manager, Corporate Planning Department2006 Executive Officer2008 Director & Executive Officer2008 General Manager, Research & Development Division2011 Director & Managing Executive Officer2013 CEO, Asia Business Company2016 Responsible for Business Process Redesign and President

& Representative Director of Kagome Axis Co., Ltd.2017 Responsible for Risk Management2018 Director & Standing Audit and Supervisory Committee

Member (to present)

⑨ Hirohito KodamaDirector, Standing Audit and Supervisory Committee Member

1989 Joined Development Bank of Japan (now Development Bank of Japan, Inc.)

1993 Seconded to the Finance Bureau of the Ministry of Home Affairs (now the Ministry of Internal Affairs and Communications)

2003 Seconded to Tesac Corporation, a company under restructure, Trustee representative, Manager of Corporate Planning Department

2006 Registered as attorney-at-law, joined Nishimura & Asahi2012 Partner at Nishimura & Asahi (to present)2016 External Director, Audit and Supervisory Committee

Member of the Company (to present)

[Significant concurrent positions]Partner at Nishimura & Asahi, Outside Director and Audit & Supervisory Committee Member, Mitsubishi UFJ Securities Holdings Co., Ltd.

⑪ Hiroshi Mori External Director, Audit and Supervisory Committee Member

Audit and Supervisory Committee Member

(Born March 22, 1959) (Born July 20, 1946) (Born February 21, 1965)Independent Independent

Remuneration and Nomination Advisory Committee Member




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Suggestions from External DirectorsSince fiscal year 2018, Kagome has been conducting an examination to identify important issues (materiality). In the

process of the examination, we incorporate expert opinions of each of our External Directors into evaluating

importance.

* The process of identification of important issues (materiality) is detailed on page 28.

For the identification of important issues (materiality)Theme:

Process matters in identifying important issues (materiality), and we should

discuss thoroughly how each issue impacts on Kagome’s business. In my

opinion, all issues should not be treated equally. Instead, we need to evaluate

positive and negative factors while taking changes with time and frequency of

occurrence into account, and prioritize what to focus on to make management

decisions.

From the viewpoint of Kagome’s materiality, I believe that “diversity &

inclusion” are keywords from the perspective of both product development

and internal innovation. Inclusion is indeed essential inside Kagome, in terms

of how we develop food products that help reduce the workload of working

women and products for the elderly and people with disabilities.

A global perspective is also important. Along with Japan’s crucial issue of a

super-aged society, Kagome needs to work out how to address poverty and

food security in developing countries. I believe this is something we need to

consider, starting by discussing the positioning of the tomato processing

business that Kagome is already conducting in India, for example.

Kagome is currently plotting issues with “importance for society” and

“importance for Kagome” as the two coordinate axes, and it is important that

the plotting reflect quantitative factors such as monetary value. Not all risks

can be measured quantitatively, but I believe Kagome ought to adopt a

quantitative approach to examining appropriateness of the plotting. In

addition, we should consider materiality three-dimensionally by adding a

frequency of occurrence axis to the plotted map. Revisions of laws and

regulations, for example, might not be very important for society, but they

could have a huge impact on Kagome and they sometimes take place

repeatedly. More frequent revisions tend to require larger invested capital,

which is why we should always be mindful of the frequency factor.

As for prioritization of the 19 types of materiality, I think the connection

between “social issues” and “Kagome’s long-term vision” should be highlighted

more clearly on the plotted map. For instance, I believe that “seeking to solve

the social issue of achieving ‘longer, healthier lives’” and “developing products

that can contribute to this” should both be handled as very important issues.

Takayuki Hashimoto

In fiscal year 2019, Kagome evaluated issues both in terms of materiality for society and business from a wide perspective through dialogue with external stakeholders compared to fiscal year 2018 when materiality was examined internally. On this occasion, Kagome received suggestions from External Directors drawing on each of their specialist areas respectively. All the suggestions are thought provoking and Kagome will verify and consider the gap between these suggestions and its own evaluation and continue its examination for the identification of important issues (materiality).

Comments on suggestions of External Directors from editorial staff

External Director

I believe that the “impact of women’s social advancement” will remain a priority issue for Kagome, which is working on achieving “longer, healthier lives.” Currently, many Japanese are malnourished. This appears to be partly attributable to needs for spending less time and effort on cooking at home associated with women’s social advancement. The biggest issue facing Japan, as a super-aged society, is the good health of its elderly population, and an elderly person’s health represents what he or she has eaten from an early age. Therefore, to extend healthy life expectancy, we need to turn our attention to the food consumed not only by the elderly but also by younger generations. Also, in view of the increase in single person households, the development of products that make it easy for anyone to have a high vegetable intake is also probably more important than ever before. I believe that anticipating such social conditions and environmental changes associated with women’s social advancement and markets arising from them and quickly taking appropriate action is crucial in order for Kagome to become a strong company that grows sustainably.

Hidemi Sato External Director

Seiichi Kondo

Environmental issues are becoming more and more significant in and outside

Japan. In the food industry, plastic straws and food loss are typical issues of

waste that Kagome should also address. However, I have the impression that

these issues are not perfectly clear in Kagome’s discussions for the

identification of important issues (materiality). As regards consideration for the

environment, I believe that the question matters most as to how Kagome will

take action to solve environmental problems through its products, not least

because this kind of issue tends to attract criticism.

In addition, risks concerning water resources are also attracting global

attention and I recognize this as a problem that Kagome should tackle first and

foremost, given its involvement in agriculture. External Director

Hiroshi Mori

I imagine that all companies that identify important issues (materiality)

recognize that compliance is an extremely important issue that impacts on

management. This is precisely why the way we foster compliance mindsets

in our employees is important. Going a step further than having employees

comply with rules, we need in essence to have as management the

recognition that compliance runs in our very corporate culture and to

inculcate the notion in our business.

I hope that Kagome is highly mindful of promoting compliance. Probably

we as External Directors can also be of help to this process. I would like to

be actively involved in developing this mindset through in-depth

communication with employees, including visiting work sites and talking with

young and middle-ranking employees. External Director & Audit and

Supervisory Committee MemberExternal Director & Audit and

Supervisory Committee Member

Morihiro Murata


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0

50

100

150

200

250

2017/12 2018/122016/122015/122014/122014/32013/32012/32011/32010/32009/32008/32007/32006/32005/32004/32003/32002/32001/32000/31999/3

Please correct numbers of "Number of shareholders" on page 56.Source is "(万人）," but the translation is "(Thousand persons)." Sorry, I should had mention this.

Note from email:https://mail.google.com/mail/u/0/#section_query/is%3Astarred/FMfcgxwChmLnLVpHvThGvxtTjzCTbMpj


Strengthening of “autonomy”

Complementation through “heteronomy”

Efforts to strengthen managerial decision-making functions, clarify business responsibility, etc.

Efforts to strengthen management supervisory functions, improve management transparency, etc.

2000Established corporate philosophy

2013Introduced stock option-based remuneration2003

Implemented an executive officer systemShortened the term of office of directors to one yearEstablished the Management Meetings

2011Disclosed the Annual Securities Report prior to the General Meeting of Shareholders

2014Appointed three external directorsEstablished the Remuneration Committee

1998Scheduled the General Meeting of Shareholders, avoiding the days when most general meetings of shareholders are held

2010Disclosed the remuneration of the representative director

2016

2017Abolished the advisor/counselor system

2018Revised Code of Conduct

2000・Declared “Vision of 100,000 ‘Kagome Fan’ Shareholders”

Transitioned to a corporate structure with an audit and supervisory committeeReorganized into the Remuneration and Nomination Advisory Committee

In accordance with our corporate phi losophy of “appreciation,” “nature” and “corporate openness,” we aim to achieve sustainable growth and improve the medium- to long-term value of the company. We acknowledge that corporate governance is a critical management issue toward these objectives. Our company considers the further strengthening of “autonomy” complemented by “heteronomy” to be the fundamentals of our corporate governance. We will ensure objectivity and transparency, forming a basis by designing

We are separating executive functions from supervisory functions to accelerate managerial decision making and help clarify business responsibility. The Board of Directors has specified that determining the company’s management strategies and policies and monitoring the implementation of such strategies and policies are its primary duties. The Board enhances the advisory and supervisory functions and increases the effectiveness of such functions by electing one third or more external directors, who satisfy the Standards for Judging the Independence of Independent External Directors, as the members of the Board. The audit and supervisory committee has set a policy of having one or more standing audit and supervisory committee members, and uses internal control systems to audit the legality and appropriateness of the operations implemented by the directors. The nomination and remuneration of directors are deliberated by the Remuneration and Nomination Advisory


our own concept of corporate governance adapted to the present day, while incorporating diverse outside viewpoints by working to attract more “Kagome Fan Shareholders” and leveraging the functions of the external directors, among other things. We aim to deliver a high degree of accountability and achieve true “corporate openness” in our interactions with stakeholders, while employing the unique attributes and originality of Kagome.

Committee, in which independent external directors account for one half or more of its members. The results of the deliberations are advised to the Board of Directors, which then determines the nomination and remuneration of the directors, thereby enhancing fairness and appropriateness. Under our executive officer system, we are using set criteria to delegate implementation responsibilities and authority to our departments. In addition, we have established the Meeting of Executive Officers in order to convey and make known the Board of Directors’ resolutions and reported matters as well as to facilitate communication and coordination among the executive officers. Furthermore, the Management Meetings have been established under the leadership of the president to ensure that business is executed in an agile manner and through mutual coordination. Deliberations at the Management Meetings enable appropriate risk taking and also produce clear allocations of responsibilities, while enabling us to make decisions in an expedient manner.

History of corporate governance and historical trends in the number of shareholders

The history of our corporate governance is a culmination of our efforts to achieve “corporate openness” as part of our corporate philosophy that can be traced back to the aspirations of our company’s founder. We have been continuously evolving up until the present through the public offering of our shares and the separation of capital from management, etc. in the past.

Basic Policy of Corporate Governance

Corporate Governance System

Selection, supervision

Decide management strategy, plans, policiesMake important operations implementation decisions

Board of Directors

Advice

Guidance

Cooperation

General Meeting of Shareholders

President & Representative Director

Internal control, risk managementImplementing operations

Joint Risk Management Meeting

Appointment, dismissalAppointment, dismissalAppointment, dismissal

Audits

Reporting Direction

Audits

AdvisingReporting

Audits, etc.

ReportingAccounting Auditor

Implementation decisions

Audit and Supervisory Committee

Meeting of Executive Officers

Management Meetings

Sharing information

External director (independent)Internal director Executive Officer

Remuneration and

Nomination Advisory

Committee

511

External (independent)

External (independent)

35

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Corporate Governance Organizational Chart

We consider a size that is appropriate for holding high-quality discussions while ensuring diversity and balance in terms of knowledge, abilities and experience in the composition of the Board of Directors in order to achieve a medium- to long-term increase in corporate value by maximizing the advisory and monitoring functions of the Board of Directors. Additionally, the Board of Directors selects candidates, taking into account the internal and external compositions, independence, specific experiences, areas of expertise, genders, nationalities, etc. according to the business environment, after deliberations of the Remuneration and Nomination Advisory Committee. One third or more of the members of the Board of Directors elected are independent external directors.

The Board of Directors currently consists of 11 members, including eight directors (excluding Directors who are Audit and Supervisory Committee members) and three Directors who are Audit and Supervisory Committee members, of which five are independent external directors. Our external directors come from a variety of backgrounds and have extensive experience and knowledge that contribute to the diversity management and business globalization included in our medium- to long-term vision and the achievement of longer, healthier lives through food. As a long-term vision, we have set the goal of increasing the percentage of women in the workforce, including executives, to 50% by around 2040, and we will aim to achieve the same for the Board of Directors at an early stage.

Specialized areas of external directors

Corporate management

GlobalSociety,

economyFinance,

accounting Law Diversity

Food, nutrition

Seiichi Kondo

Takayuki Hashimoto

Hidemi Sato

Morihiro Murata

Hiroshi Mori

Kagome’s Policy on Appointing Directors


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The Company deems an external director to have sufficient independence in the event that he/she meets the Standards for Judging Independence as described below:

(1) A person who is not or was not in the past a director, audit & supervisory board member (excluding outside officer), executive officer or employee of the Kagome Group

(2) A person who is not or has not been a major shareholder of the Kagome Group in the past five business years (pertains to a shareholder who holds 10% or more of the total voting rights of the shares of the Kagome Group), or a person who is not a director, corporate auditor, executive, executive officer or employee of an entity for which the Kagome Group is a major shareholder

(3) A person who is not a director, corporate auditor (excluding outside officer), executive, executive officer or employee of a major business partner of the Kagome Group (pertains to a business partner whose transactions with the Kagome Group amount to 2% or more of the consolidated net sales of the Kagome Group in any of the past three business years)

(4) A person who is not a director, corporate auditor (excluding outside officer), executive, executive officer or employee of an entity for which the Kagome Group is a major business partner (pertains to a business partner whose transactions with the Kagome Group amount to 2% or more of the consolidated net sales of the business partner in any of the past three business years)

(5) A person who is not an officer or employee of corporations or organizations that receive a large amount of donations* from the Kagome Group

* An average of 10 million yen or more annually in the past three business years, or an amount that is 2% or more of the net sales or total revenue of the recipient

(6) A person who is not a director, corporate auditor (excluding outside officer), executive, executive officer or employee of a corporation that mutually exchanges directors, corporate auditors or executive officers with the Kagome Group

(7) A person who has not been a representative partner, partner or employee of the accounting auditor of the Kagome Group in any of the past five years

(8) A person who is not an attorney-at-law, a certified public accountant, a certified tax accountant, a consultant or another professional who receives a large amount of remuneration* from the Kagome Group, other than compensation as an officer* On average in the past three business years, 10 million yen or more in

the case of an individual and 2% or more of consolidated net sales in the case of a corporation

(9) A person who is not the spouse, a relative within the second degree of kinship or a relative living together with any person described in (1) through (8) above

(10) A person whose total term of tenure as an external director is at most eight years

Our company’s directors’ remuneration comprises basic compensation and cash bonuses and stock options that are linked to business performance. The proportions of each of the above are determined based on the positions of the directors. Basic compensation is fixed compensation that is determined based on directors’ positions and the scope of the role of each job grade. Cash bonuses and stock options are determined based on consolidated profit indicators as the company-wide business performance and contribution made by each individual director. Stock options serve as incentives for mid-term and multiple-year management and are designed to be exercisable based on consolidated profit indicators after a certain period of time from the time of allotment as exercise conditions. Accordingly, the exercisable number of these stock options is determined according to the degree of attainment.

Compensation for directors, audit and supervisory committee members and external directors each comprise basic compensation. Further details are provided in the Annual Securities Report for the 75th Period. (https://www.kagome.co.jp/company/ir/data/statutory/2018/) In fiscal 2014, the Remuneration Committee, as an advisory body to the Board of Directors in which external directors account for one half or more of its members, was established in order to enhance transparency and objectivity in determining directors’ compensation, etc. In fiscal 2016, the same committee was given functions as an advisory body concerning the nomination of directors, and was then reorganized to become the current Remuneration and Nomination Advisory Committee.

Remuneration and Nomination Advisory Committee: 4 or 5 meetings held/year

Fiscal year in which the committee was convened

Main matters deliberated

2018 The first committee

∙ FY2017 executive bonus factor ∙ Personnel reshuffle of directors with effect from March 2018

The second committee

∙ Directors’ compensation for FY2018 ∙ Finalization of FY2015 stock options ∙ Process of determining overseas CEO remuneration ∙ FY2018 succession process

The third committee

∙ Personnel reshuffle of directors with effect from October 2018

∙ Review of stock compensation

The fourth committee

∙ Market data on directors’ compensation ∙ Estimates of variable compensation for FY2018 ∙ Progress of succession process

The fifth committee

∙ Personnel reshuffle of directors with effect from March 2019

∙ Business performance indicators concerning directors’ compensation

∙ Proposal of introduction of stock compensation

Fiscal year in which the committee was convened

Main matters deliberated

2019 The first committee

∙ Directors’ bonus for FY2018 ∙ Directors’ compensation for FY2019 (first deliberation)

∙ Directors’ performance-linked bonus indicators for FY2019

∙ Proposal of exercise conditions of stock options

∙ Finalization of FY2016 stock options

The second committee

∙ Directors’ compensation for FY2019 (second deliberation)

∙ Evaluation and compensation of overseas CEOs

∙ FY2019 succession process

Note: The Kagome Group refers to Kagome Co., Ltd. and its subsidiaries.

Directors’ compensation

Breakdown of compensation by position

Total amount of compensation, etc. of individual directors

Amount of fixed compensation by position (excluding Director & Audit and Supervisory Committee member and External Director)

Category of directors Total amount of compensation,

etc. (million yen)

Total amount of compensation, etc. by type (million yen) Number of eligible directors

(persons)Basic

remunerationStock options Bonus

Directors (excluding audit and supervisory committee members)*

298 133 45 120 6

Directors (audit and supervisory committee members)*

26 22 3 - 2

External directors 51 51 - - 5

Position

Fixed-amount compensation

Performance-linked compensation Distribution of evaluation

Short-termcash bonus

Stock options TotalCompany-wide

business performance

Individual performance

President & Representative Director 50% 33% 17% 50% 100% 0%

Director & Senior Managing Executive Officer 60% 28% 12% 40% 80% 20%

Director & Managing Executive Officer 65% 25% 10% 35% 80% 20%

Director & Audit and Supervisory Committee member

100% 0% 0% 0% - -

External Director 100% 0% 0% 0% - -

Category of directors Total amount of compensation,

etc. (million yen)

Total amount of compensation, etc. by type (million yen)

Basicremuneration

Stock options Bonus

President & Representative Director Naoyuki Terada 114 43 21 49

Position Fixed-amount compensation (Million yen)

President & Representative Director 43

Director & Senior Managing Executive Officer (set according to job grade) 25 – 27

Director & Managing Executive Officer (set according to job grade) 23 – 25

* Excluding external directors. Our company transitioned to a corporate structure with an audit and supervisory committee as of March 25, 2016.

* Only compensation, etc. of persons whose total amount of compensation, etc. is 100 million yen or more is stated.

Standards for Judging the Independence of Independent External Directors of the Company

Directors’ Remuneration

The performance-linked compensation of each director is calculated using the formula shown below:

Basic bonus amount = Total basic compensation of each position/job grade × Total percentage of performance-linked compensation

Total amount of performance-linked compensation = Company performance pay coefficient*1 × Company performance evaluation weight × Basic bonus amount + Individual performance pay coefficient*2 × Individual performance evaluation weight × Basic bonus amount

Calculation Method of Performance-linked Compensation

*1 The “company performance pay coefficient” is determined through a “company performance evaluation” which evaluates the rate of achievement of company performance indicators. For FY2015 to FY2018 (the First Mid-Term Management Plan period), our company set as a company performance indicator the “ratio of consolidated ordinary income to consolidated net sales” that it has defined as an important consolidated management indicator for the evaluation of company performance. The FY2018 standard value (1.00) was set at 5.0%, which is the target ratio of consolidated ordinary income to consolidated net sales under the First Mid-Term Management Plan. Against this target, the actual ratio of consolidated ordinary income to consolidated net sales for FY2018 was 5.7%. Accordingly, the company performance pay coefficient used in the calculation was 1.35, the value set in advance.

*2 The “individual performance pay coefficient” is determined through an “individual performance evaluation” which evaluates achievement and contribution against the individual performance indicators of each director. Individual performance indicators measure degree of contribution to solving company-wide issues and departmental issues and are set for each director in the form of KPIs (Key Performance Indicators). Ratio of consolidated ordinary income to consolidated net salesRatio of consolidated ordinary income to consolidated net salesRatio of consolidated ordinary income to consolidated net sales

02.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 (%)

0.50

1.00

1.50

2.00

2.50

Standard value 5.0%(1.00)Standard value 5.0%(1.00)

Actual value 5.7%(1.35)

Actual value 5.7%(1.35)

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Our company voluntarily adopted International Financial Reporting Standards (“IFRS”) in place of the existing Japanese accounting standards (“JGAAP”) from fiscal year 2019. By using IFRS, we will seek to improve our business administration quality and enhance international comparability. With the adoption of IFRS, we changed our accounting auditor to PricewaterhouseCoopers Aarata LLC. In our judgment, PricewaterhouseCoopers Aarata LLC is suitable for the job because it has the expertise, independence and quality control structure required of an accounting auditor and is also

Our basic policy is to dispose of or reduce, as promptly as possible, the holding of shares considered insignificant. Each year, our company reviews the significance, economic rationality and other factors of cross-shareholding and determines whether or not to continue each holding and the number of shares to be held. The examination of economic rationality sets the value for each holding as of the end of the most recent fiscal year as the standard to calculate the percentage at which the holding contributed to the profit of the Company in such fiscal year. When such percentage is below a figure equivalent to approximately

a member of the global network of PricewaterhouseCoopers, which operates as an accounting auditor worldwide. With the adoption of IFRS and the change of accounting auditor, Kagome has established and implemented Group accounting, tax and financial management policies as shown below. We are dispatching finance and accounting personnel directly from head office to major group companies and are working to improve Group governance including compliance with these policies.

twice the average ROA of the Company for the past five years on a non-consolidated basis, such shares are subject to review for sale. Also reviewed are shares whose market price has declined 30% or more from the book value and shares of a company with whom the Company has transactions amounting less than 100 million yen per year. Shares of the Company’s suppliers and clients that fall below these standards are subject to deliberation at meetings of the Board of Directors every year as to whether or not to sell them. As a result of a review, the Company sold some of its cross-shareholdings in fiscal year 2018.

Strengthening Group Governance

Cross-shareholdings

• Revision of the rules for the submission of proposals to the Board of Directors (transition to the Management Meetings)

•Making an annual schedule of proposals to the Board of Directors

• Providing external directors with prior explanations of proposals to the Board of Directors

�Organizing a study camp to examine the next Mid-Term Management Plan

• Holding meetings for external directors to share the matters deliberated in the Management Meetings

• Conducting site visits to the company’s overseas subsidiar-ies by external directors

• Changing seats at the Board of Directors’ meetings

�Adding “deliberation” to proposal categories

For details, please refer to our corporate governance report. (Kagome website: www.kagome.co.jp/company/ir/stock/governance)

Response to the Corporate Governance Code

The star marks ( ) indicate new activities.

Initiatives to Enhance the Effectiveness of the Board of Directors

Domain Name Main points

Accounting Kagome Group Financial Reporting Standards (K-FRS) Conformity with IFRS

Tax Kagome Group Tax Policy Compliance with laws and regulations of each country and each region

Prohibition of tax evasion and excessive tax avoidance

Finance

Kagome Financial Management Basic Policy

Reduction of risk assets; maximization of capital and asset efficiency

Risk management and prohibition of speculative financial transactions

Kagome (Subsidiaries) Financial Management Basic Policy Same as above

No holdings of financial products such as derivatives, in principle

Our company undertook an evaluation of the effectiveness of the Board of Directors in November 2018. An overview of the results is described below.

Results of Evaluation of the Effectiveness of the Board of Directors

The cash bonus for a single fiscal year, which is short-term performance-linked compensation, is calculated using the formula shown below:

Our company adopts stock options as medium- to long-term performance-linked compensation for directors. Our company’s stock options are designed based on a scheme of stock options as compensation whereby the exercise price is 1 yen (the amount paid by the individual is one yen per share). The number of stock options allotted is determined by dividing the cash value of the stock options, which is decided based on the performance evaluation for a single fiscal year, by the fair value of Kagome’s shares at the time of their allotment. The number of shares that can be acquired by exercise of the stock options will then be decided according to the degree of achievement of the company-wide performance indicator (ratio of consolidated ordinary income to consolidated net sales) in two years’ time. The cash value of stock options is calculated using the formula shown below:

Short-term performance-linked compensation: Cash bonus

Medium- to long-term performance-linked compensation: Stock options

Company-wide/Individual performance evaluation

Performance conditions two years later

Cash value of stock options ÷ Fair value of Kagome’s shares at time of allotment↑

FY2018 FY2019 FY2020

Number of shares subject to the stock options

(Number of stock options allotted)

Number of shares that can be acquired by exercise of

the stock options

Cash bonus =

Cash value of stock options =

Total amount of performance-linked compensation for single fiscal year × Percentage of total amount of performance-linked compensation accounted for by cash bonus

Total amount of performance-linked compensation for single fiscal year × Percentage of total amount of performance-linked compensation accounted for by stock options

1. Methods of evaluation Conducted surveys of directors (30 items within 6 categories)

The survey categories are as follows.(1) Design of the Board of Directors(2) Operation of the Board of Directors’ meetings(3) Proposals by the Board of Directors(4) Quality of Discussions by the Board of Directors(5) Corporate Governance System(6) General AssessmentQuestionnaire undertaken by each committee/deliberations by the Board of Directors taking the above into account.

2. Overview of results of evaluation As a result of discussions that took the above into account, the

Board of Directors of the company concluded that the Board generally functioned in an appropriate manner in all categories and its effectiveness was positive.

Areas suggesting a need for further improvement in the evaluation of the effectiveness this time included “reporting the status of operations (setting agenda items systematically and in order of priority),” “improving the timing of discussions of important issues and following them up” and “improving the quality of deliberations and securing time for deliberations.”

We are implementing initiatives in these areas in response to last fiscal year’s results of evaluation of the effectiveness. In terms of “reporting the status of operations (setting agenda items systematically and in order of priority),” we will enhance effectiveness by increasing opportunities to share information with directors and by

developing an annual schedule for reporting operations. In terms of “improving the timing of discussions of important

issues and following them up,” the comments that were made mainly concerned deliberations of investment projects and we will seek improvement by enhancing the functions of the Investment Committee to speed up opportunities for deliberations by the Board of Directors and to include agenda items on monitoring and reporting investment projects.

In terms of “improving the quality of deliberations and securing time for deliberations,” we have sought to secure time for deliberations through efforts to shorten explanation time by restricting the number of forms/sheets of materials for meetings of the Board of Directors and always sending (explaining) materials ahead of meetings. To ensure more time for deliberations, we will introduce advance questioning to ensure that more substantive discussions take place at meetings of the Board of Directors.

Members of the Remuneration and Nomination Advisory Committee expressed opinions on the timely convocation of meetings and the progress of discussions on the succession plan, while members of the Audit and Supervisory Committee generally rated effectiveness highly but expressed the view that efforts should be made to further strengthen audit functions through stronger collaboration with relevant departments and others. Our Board of Directors also recognizes these as issues to address and will work to solve them.

Our company will seek to further improve the effectiveness of the Board of Directors in light of the results of the latest evaluation of the effectiveness of the Board of Directors.


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Kagome, as a “vegetable company” that makes maximum use of nature’s bounty and aims to contribute to helping customers live longer, healthy lives, has been promoting activities to reduce various risks centering on food safety. We

Our company strives to address operational risks in each department and “risks related to business” described in our Annual Securities Report. Also, in terms of company-wide risk management, we are seeking to create an enhanced risk management structure and have established five specialized committees which handle issues that are viewed as being particularly important for a food products company. We have also established a Joint Risk Management Meeting chaired by the President and Representative Director, as an overall risk management structure. The meeting is attended by the Director & Senior Managing Executive Officer(s), Director & Standing Audit and Supervisory Committee Member(s) and Managing Executive Officer & Chief Human Resource Officer, and also includes other Audit and Supervisory Committee Members who are external directors in its membership, enabling the meeting

are engaged in continuous risk management efforts in keeping with a company-wide approach to risk management (ERM: Enterprise Risk Management) to improve the efficiency of management decision-making with an eye on ESG.

to obtain objective assessments from an outside perspective. The meeting endeavors to maintain a detailed grasp of the state of risk response activities across the entire Kagome Group and to make improvements that will enable swifter decision-making with regard to risk response policies and significant risk response issues. The Joint Risk Management Meeting meets on a regular basis to receive reports and suggestions from the each committee and relevant departments on day-to-day social issues, their impact on the Kagome Group and responses to such issues, and to discuss and instruct on necessary responses. In addition, in order to improve effectiveness of internal control, details of the instructions are utilized in monitoring by the Internal Audit Department, and the results of the monitoring are reported to the Board of Directors and the Audit and Supervisory Committee.

• Compliance Committee

The Compliance Committee is a corpo-rate body to promote compliance in the Kagome Group. This committee has set up a Compliance Hotline within its sec-retariat to receive reports from employ-ees and others. In this way, we work to put in place preventive measures and to detect any anti-social or unethical ac-tions as early as possible. Furthermore, this committee discusses measures in response to new public regulations, etc. as necessary.

• Information Security Committee

The Information Security Committee determines basic policies and audits the execution of these policies with regard to the protection of important information, such as personal information held throughout the Group, as well as the proper management framework and usage. The committee works to assure adherence to the law and prevent information leaks. The Information Security Committee conducts monitoring of any nauthorized access from the outside and examines measures to enhance operation of information system.

•Quality Assurance Committee

To ensure customers enjoy peace of mind when using our products which contribute to customers’ longevity and good health through nature’s bounty, maintaining quality is always the most important issue

for our company as a food manufacturer. With the objective of strengthening quality assurance of products, the Quality Assurance Committee brings together representatives of relevant departments and meets monthly to address customer comments, prevent accidents, respond to amendments of laws, and assure proper label ing. The establ ishment of this committee has enabled Kagome to respond more precisely, and in a more expeditious fashion, both internally and externally.

• Research Ethics Review Committee

For the purpose of contributing to giving customers longer, healthy lives through provision of vegetables, our company is engaged in research activities toward unraveling of the mechanism behind the benefits of vegetables and acquisition of its evidence. The Research Ethics Review Committee was established to investigate possible risk of individual dignity or human rights being impinged on when product efficacy and safety verification testing on humans is being conducted at the R&D stage. This committee is comprised of employees who are not a part of our company’s R&D operations, as well as external medical experts and lawyers, hence creating a framework with a neutral perspective, capable of judging ethical adequacy and scientific legitimacy of research objectives and methods.

Joint Risk Management Meeting

President & Representative Director

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• Investment Committee

Our company is working on various busi-ness developments in order to be trans-formed from a “tomato company” to a “vegetable company.” The Investment Committee is an independent committee which consists of members selected from in-house specialized departments. The committee was established for the purpose of assessing the profitability and risks of investments drafted by each de-partment and monitoring investment re-turns. Proposals which are verified by this committee are submitted to the Board of Directors or the Management Meetings and deliberated officially.

Initiatives to Strengthen Internal Control

Policies for Handling Risk

Companywide Risk Management Structure

The Kagome Group has established a Compliance Commit-tee, under the supervision of the Joint Risk Management Meet-ing chaired by Kagome’s President & Representative Director. The Compliance Committee, which is chaired by the Executive Officer with responsibility for overseeing compliance, undertakes the verification of compliance promotion and monitoring status. The results of the Compliance Committee’s deliberations are re-ported to the members of the Management Meetings via the Joint Risk Management Meeting. The Legal Affairs Office, which functions as the secretariat of the Compliance Committee, plays the central role in day-to-day compliance operations. Kagome established the Kagome Compliance Hotline, which is accessi-ble to all domestic Group employees, and through which reports can be made and guidance given with regard to illegal or suspi-cious activities in the workplace. This system incorporates an in-ternal direct line to the Compliance Committee’s secretariat, as well as an external hotline to an outside law firm. To encourage employees to use these contacts without hesitation, the identi-ties of those making reports are kept strictly confidential. Kagome takes steps to protect the privacy of employees who make reports to ensure that these employees do not suffer any adverse consequences. We quickly conduct investigations based on the information received and take appropriate counter-

Having formulated the Kagome Group Compliance Implementation Rules, Kagome Group implements thorough compliance throughout the Group. At domestic Group companies, the legal affairs department, which serves as the secretariat of the aforementioned Compliance Committee, leads these efforts. Compliance implementation activities include not only the preliminary checks in compliance-related cases and the dissemination of compliance-related information, but also the conduct of group-training for new employees and new managers, and an ongoing program of in-house compliance seminars, etc. that make use of e-learning, case studies, and

In all the countries and regions where it conducts its business operations, the Kagome Group observes and adheres to tax laws, maintains good relationship with tax authorities, and contributes to society by paying the appropriate taxes. We also respond in a timely and appropriate manner with regard to annual revisions to taxation systems and changes in the international taxation rules, including tax treaties, conventions and OECD guidelines. Internally, we carry out regular e-learning and other training with regard to tax compliance, in order to

measures. In such cases, respecting the principle that whis-tleblowers and other related parties cannot be identified, we share information internally so as to prevent similar incidents from occurring in the future. In fiscal year 2018, the Kagome Compli-ance Hotline was used 13 times, and each case was resolved. Kagome fully recognizes the importance of compliance in rela-tion to the Group companies located overseas. In 2014, an overseas internal reporting system has been introduced, and the scope of this system has been gradually expanded to in-clude the Group companies located in the U.S. and Australia. We will continue to strive to prevent and rapidly identify illegal activities through the appropriate operation of the Kagome Compliance Hotline.

group discussions. The in-house compliance seminars are integrated with the Skill Points program that forms part of the company’s personnel management system, and participation in these seminars is a prerequisite for promotion. In fiscal year 2018, we conducted an internal survey about harassment in light of social trends. We also formulated detailed rules of implementation for the eradication of harassment as a concrete example of creating a climate that does not foster or tolerate harassment, which is mentioned in the Code of Conduct. We also established a collection of harassment case studies with reference to the internal survey and sought to raise awareness among employees.

enlighten employees regarding observance of tax laws. With regard to transfer pricing taxation, we have established transfer pricing management regulations. For international transactions between companies belonging to the Group, we analyze the functions, assets and risks associated with each party in the transaction based on the arm’s length price principle, and calculate appropriate profit allocations and transfer prices based on their respective contributions.

The world is seeing more severe problems in all aspects of society while Japan has been experiencing a super-aged soci-ety and frequent natural disasters. In light of these, we revised our Code of Conduct last year with a view to realizing a sustain-able society for our company’s survival, looking to the environ-ment that requires a “mutual support” spirit and framework. The new Code of Conduct consists of three strands: “mutual support,” “respect for human rights” and “fairness” and it is con-

sidered pivotal for the daily activities of Kagome Group employ-ees, indicating how they should behave as corporate citizens as Kagome set its sights on becoming a “Strong company capable of sustainable growth, using food as a means of resolving social issues” by 2025. We will seek to raise awareness of the revised Code of Conduct and maintain high ethical standards as we fulfil our social responsibilities in compliance with laws, regulations, international rules and the spirit of our Code of Conduct.

2018(FY)

10

3

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14

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1

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6

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Number of consultations and reports received by Kagome Compliance Hotline

Compliance

Compliance Promotion System

Initiatives to Maintain Rigorous Compliance

Tax Compliance

Revision of Code of Conduct


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R&I (Rating and Investment Information, Inc.)

Long-term credit rating

A A J-1

JCR(Japan Credit Rating Agency, Ltd.)

Long-term credit rating

Short-term credit rating

Our Responsibility to Shareholders and Investors

Our company discloses information to shareholders and investors in a fair, simple and timely manner. We attach great importance to opportunities for two-way communication with shareholders and investors through IR events such as the General Meeting of Shareholders, “Talks with the President,” “Production Plant Tours,” etc.

Information Disclosure

Our company encourages an ever-greater number of shareholders to participate in its General Meeting of Shareholders by enhancing the content of the “convocation notice” and “documents accompanying the convocation notice,” disclosing them on the company website and sending them as early as possible. These also feature messages from directors and suggestions from external directors. On the actual day of the General Meeting of Shareholders, we make efforts to provide reports in an easily understandable manner, such as through speaker explanations and visuals using videos. Furthermore, through displays in the lobby, we work to share information about our activities with shareholders in a more productive manner and encourage their direct feedback. For shareholders who are unable to attend meetings, we accept questions and provide answers via the Internet. After the meeting, we promptly disclose details of the meeting on our website, including details of Q&A sessions and results of questionnaires completed by shareholders who attended the meeting.

General Meeting of Shareholders

Based on the idea that management oversight is enhanced by feedback about a company’s corporate activities and business performance from the perspective of numerous shareholders, in fiscal year 2001, we began working to attract 100,000 “Kagome Fan” shareholders. This initiative drove shareholder numbers past the 100,000 mark on September 30, 2005, and the number of shareholders currently stands at around 180,000. We will continue to appropriately reflect the valuable opinions and needs of our shareholders in all our corporate activities.

Management Oversight

Our company recognizes that returning profits to its shareholders is one of its most important management issues. For 2018, we decided to pay dividends of 40 yen per share, which comprises an ordinary dividend of 30 yen per share plus a commemorative dividend of 10 yen to mark the 120th anniversary of our founding. For 2019, we plan to pay dividends of 35 yen per share.

Dividends for Fiscal Years 2018 and 2019

Under Kagome’s Special Shareholder Benefits system, a selection of Kagome products is sent to shareholders throughout Japan.Rather than merely being a case of “giving something back to shareholders,” the main aim of the Special Shareholder Benefits system is to use Kagome products to give a better understanding of our company; every time, the products are accompanied by a questionnaire survey which helps our company to understand shareholders’ views and expectations, information which can then be utilized effectively in our company’s business activities. In 2019, we are launching a new scheme whereby we present commemorative gifts to shareholders who have kept their shares for 10 years or longer, with the aim of encouraging shareholders to maintain ownership of their shares in the long term.

Special Shareholder Benefits

Our company’s financial credibility is rated by Rating and Investment Information, Inc. (R&I) and Japan Credit Rating Agency, Ltd. (JCR). The most recent ratings on Kagome by the two agencies are shown on the right.

Credit Ratings

Board of Directors/Audit and Supervisory Committee

Management

The first line of defense The third line of defenseThe second line of defense

Our company sustained significant damage from the Great East Japan Earthquake. As a result, like many other companies, we are working to strengthen the company-wide communication infrastructure in the event of large-scale disasters and such. At the same time, through activities to support disaster-stricken areas such as provision of our products to evacuation centers after the earthquakes, we listened to the opinions of many people about vegetable intake. This reminded us about the social significance of Kagome’s existence and that our company is an integral part of a lifeline which involves food. Based on what was learned and experienced from the Great East Japan Earthquake, we set out “First Action Guidelines after Occurrence of Large-scale Disasters,” which state roles and first actions in accordance with management resources (people, products, facilities, information). With regard to initial actions from the time

of occurrence of large-scale disasters until the time of assembling the in-house Disaster Countermeasures Center headed by the president according to BCP*1, at the initiative of the management, a consensus is made among relevant departments to take actions without delay. In accordance with the guidelines, in the event of disasters, a distribution network is to be established under the leadership of SCM Division to achieve the quickest possible recovery of product supply. Development of BCM*2 on a global scale in cooperation with overseas locations will be our challenge for the future, where there may be difficulties due to the difference in laws and regulations by country and other issues.

Since the Kagome Group is expanding its business domains and also broadening its areas of operation globally in order to achieve the targets of the Mid-Term Management Plan, the Group leverages the internationally recognized “Three Lines of Defense” model and COSO Framework for internal control and is systematically implementing initiatives accordingly. Under the “Three Lines of Defense” model, management at business sites (branches, plants, etc.) and subsidiaries which conduct day-to-day business activities is positioned as the first line of defense and department managers at each business site introduce and implement controls (segregation of duties, rules, documentation, etc.) to address various risks related to business execution. The head office departments responsible for financial management, quality, environment and so forth which oversee these activities serve as the second line of defense and use their specialist knowledge to conduct supervision and regular monitoring of the first line of defense. In addition, the Internal Audit Department, which is an organization under the direct

supervision of the management, maintains its independence and objectivity as a third line of defense and provides assurance to the management by conducting regular internal audits of the first and second lines of defense. It also draws on its specialist knowledge to provide consulting services to the first and second lines of defense upon request. Internal audit initiatives by the third line of defense are conducted in line with four objectives of the COSO Framework: We conduct J-SOX audits in collaboration with an external audit corporation concerning (i) reliability of financial reporting and (ii) safeguarding of assets, while we conduct operational audits with respect to (iii) compliance with applicable laws and regulations and (iv) effectiveness and efficiency of operations, based on our internal auditing standards. For overall improvement in (i) through (iv), it is important to encourage ethical behaviors on the part of all employees and we also carry out various internal awareness-raising campaigns (by such means as social media and surveys) throughout the year.

Kagome’s “Three Lines of Defense” Model

Supervision, audits

Direction, supervision

Direction, supervision Reporting

Managers of site operations(branches, plants, R&D, business

departments, etc.)

Own and manage risks and controls

Head office administrative departments dealing with aspects such as financial

management, information security, quality, environment, and compliance,

five specialist committees

Draw on specialist knowledge to manage and monitor the first line of defense and

provide it with support

Internal Audit Department, Joint Risk Management Meeting

Evaluate operations of the first and second lines of defense and provide

assurance and consulting services from an independent standpoint

Leveraging the “Three Lines of Defense” Model and the COSO Framework

Initiatives for Supply Chain with an Eye on BCP

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*1 BCP: Business Continuity Plan*2 BCM: Business Continuity Management


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agome’s M

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Financial Performance

Strategiesforimprovingprofitinthedomesticprocessedfoodbusiness

Progress is being made as planned in terms of the management of marginal income and the breakeven point ratio, which was a focus of our efforts in our earnings structure reforms. We are focusing on the efficient use of sales promotion costs and advertising expenses and on the reduction of logistics costs by expanding the joint delivery framework at five domestic food companies as part of our review of freight charges. Logistics needs are becoming more and more sophisticated, and while the “logistics style reform” including two-day delivery and regular delivery is necessary, we are cutting back on the logistics costs of individual companies through the joint delivery system. In our review of unprofitable products, we decide on the number of product items to be discontinued at the beginning of the year, and fewer unprofitable products set the bar higher year after year. We are, therefore, taking action to improve total productivity, in other words, we are not simply reducing products with negative marginal income but also improving the operational level and operating rate of our plants.

BalanceSheetChanges ROE stood at 11.3% for the fiscal year ended December 31, 2018. A breakdown of the figure shows that the income ratio was 5.49%, the total asset turnover ratio was 1.08, and the financial leverage ratio was 1.91. The total asset turnover ratio has exceeded 1.0 for the last three years and the financial leverage ratio has improved compared with the previous level of over 2.0. In terms of asset efficiency, in-house manufacturing and outsourced manufacturing affect the balance sheet in different ways. Given that in-house manufacturing is also necessary because of its advantages in terms of profitability, etc., we intend to proceed systematically with a certain level of capital investment. This may cause the total asset turnover ratio to fall temporarily but our intention is to increase ROE by improving profitability. As for inventory, there is still room to improve efficiency. Due to our business structure, tomatoes to sell the following year pile up from August through October and we tend to have too much inventory at the end of the fiscal year. There are two types of tomato inventory: inventory for use as raw materials in Japan and inventory for sale overseas. We are in the process of strengthening our sales capabilities to sel l out inventory at overseas bases and are examining introducing Vendor-Managed Inventory in Japan. The way we stock inventory can be improved in terms of types of contracts with customers.

The domestic processed food business managed to produce great results thanks to earnings structure re-forms. The biggest contributor to its sales growth was the Yasai Seikatsu 100 Smoothie. The product tapped into demand for “filling snacks” and created a new mar-ket. Its success was largely credited to the successful launch of the Green Smoothie first and foremost, then the popularity of the 330ml size carton with a cap, and the successful proposal of a new drinking scenario which tapped into demand among consumers who prefer to have their breakfast at their office desks. An initiative that contributed significantly to profit growth was a review of unprofitable products based on a top-down approach. In-store consumer products require physical shelves, which means that products that do not sell inevitably end up being eliminated. However, institutional and industrial products are free from physical shelves that limit the number of items. Consequently, the number of items tended to increase regardless of sales trends. Roughly speaking, our revenue structure is such that consumer products account for around 20% of the total number of items and around 80% of total net sales and institutional and industrial products account for around 80% of the total number of items and around 20% of total net sales. Due to industrial and institutional products that made a relatively minor contribution in terms of net sales, our plant production system was sometimes overstretched. Inventories of these products then led to waste because they had to be destroyed if there were no orders before the shipping deadline and we used to have several products with negative marginal income.

To address this situation, we conducted a review of unprofitable products, coming up with various ideas such as consolidating similar products in consideration of customers. As a result, profitability improved significantly. Whilst always putting the customer first, we carefully examined our unprofitable operations. This led to a reduction in the volume of operations, which was also helpful for work style reforms. Meanwhile, earnings structure reforms in the domestic agri-business and international business lagged behind. The agri-business performed fairly well in 2016. In hindsight, tomato prices remained high in that year, which drove up profits. We misjudged that higher profits were attributable to Kagome’s capability and that a larger supply of tomatoes would lead to better earnings. This is why we suffered from our lackluster performance in 2017 and 2018. When market conditions subsequently declined and tomato prices fell, the agri-business also fell into the red. We concluded that this slump was a cyclical problem in 2017. And honestly, in 2018, we had groundless optimism in our company, assuming that we should make some efforts to help ourselves but prices would turn around. The essence of the problem is that we were slow in preparing for the worst and when we should have been carrying out fundamental checks, including checking up on the state of our competitors, we neglected to do so. Also, the agri-business performance had been driven by Kagome’s strong sales capability underpinned by the strength of our relationships with mass retailers all over Japan. We should have considered that the great

results in 2016 came as marketing activities leveraging the sales capability culminated in the year. With this kind of approach, we will not be able to respond to future market trends. We have been constantly engaged in the development of fresh tomatoes for 20 years, but only recently have we recognized the necessity to tackle issues that should have been addressed in the past two decades, such as developing more tasty tomatoes and controlling supply and demand. When goods increase in volume, consumer needs become more sophisticated. We have been doing things right in front of us but have been underprepared in the longer term, failing to ask ourselves “what do we do next?” In 2014, we launched an initiative to stabilize earnings by branching out into baby leaf lettuce in addition to our tomato business. The question of how to put the baby leaf lettuce business on track whilst preparing for the future poses a major challenge. The international business is basically in a similar situation to the agri-business. The frameworks optimized in the domestic processed food business could not be applied to the international business without modification and there were also issues with the decision-making framework. In particular, there is room for improvement in terms of the management structure, i.e., the management exercised by Kagome’s head office in Japan. We should sincerely reflect on the fact that we ended up showing too much respect for local autonomy and created a situation that prevented head office from providing sufficient guidance. Our overseas subsidiaries carry out preliminary processing of agricultural raw materials locally but we failed to give local businesses sufficient guidance and advice in areas such as financial considerations, including profitability, and quality assurance, i.e., food safety and security. To address these issues, we need to strengthen collaboration between overseas subsidiaries and the head office, gain a real time understanding of their situation and instruct them to adopt a multifaceted approach. One such measure is our initiative where we are dispatching finance and accounting personnel from the head office and ensuring compliance with global quality management standards to strengthen monitoring and control by head office. If we success-fully manufacture high quality products through these initiatives, our sales and profits are sure to grow. For the future development of the international business, it is important to ensure quality that meets customer requirements. In our manufacturing activities, we will pursue quality products tailored to various needs of consumers in regions around the world.

Reformearningsstructureandaimforhealthygrowth:Strongersalesnaturallycomewithbetterprofits

ReviewoftheFirstMid-TermManagementPlan(2016-2018)

YoshihideWatanabeDirector & Senior Managing Executive Officer

Overview


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We now have all the pieces needed to complete the puzzle of “achievement of the long-term vision.”

What matters for Kagome’s future management is where to start fitting these pieces into the puzzle.

Kagome values are autonomy and upfront characteristics.

Since we have never been a company where employees just

do as they are told, we will continue moving forward as an

“open company,” both internally and externally.

Investment securities decreased significantly from 22.4 billion yen at the end of the fiscal year 2017 to 10.4 billion yen at the end of the fiscal year 2018. As specified in our Corporate Governance Report, we

have established clear standards. The clear standards get rid of unnecessary discussions and lead us to a conclusion automatically, which also benefits the work style reform.

FinancialStrategiesundertheSecondMid-TermManagementPlan(2019-2021)

IssuestoBeAddressedandMeasuresinFiscalYear2019

FinancialStrategiesforAchievementofthe2025Targets

OurGoal Based on the policies of “reforming our earnings structure” and “taking on the challenge of entering new businesses and domains,” we are acutely aware of “healthy sales growth.” Over the past few years, our sales have been treading water at around 200 billion yen. To achieve sales of 250 billion yen, developing the ability to sell out all our products is essential, and it is important to translate capital investment and research and development expenses into sales. Our net sales target for fiscal year 2019 is conservative. For fiscal year 2020 and fiscal year 2021, we have strategically set ourselves a target compound annual growth rate of 5% or more. Given that the compound annual growth rate of our net sales over the past five years is 1.7%, this 5% target is extremely ambitious. Whilst our profit target for fiscal year 2021 in our domestic processed food business is modest, I believe that there is still room for improvement through marginal income-based management. As the marginal income-based management of individual customers is being implemented, the number of success stories is also increasing, and we are also sharing best practices internally. Meanwhile, we plan to pass along higher logistics expenses, raw materials prices and other costs to selling prices where necessary and we have already decided to raise prices of certain products from July 1. However, this alone will not be enough. To persuade customers to continue choosing Kagome products out of many products available, we will continue focusing on enhancement of product value and product development. On the other hand, our profit targets for the agri-business and international business are aggressive but, in my view, achievable provided we succeed in realizing our intrinsic capabilities. It is also true, though, that I am still slightly unsure about achieving the targets, judging from the past progress. I intend to ensure the targets are met through increased monitoring granularity in precision and frequency as well as

One of the main factors that push down profits in the domestic processed food business is the negative effect of currency fluctuations. We import a great deal of raw materials from overseas and have traditionally hedged long-term currency exposures in some transactions in order to stabilize management and make forecasts. This f iscal year, hedges implemented when the yen weakened dramatically in the past will expire and this is expected to negatively impact on our performance compared with the previous fiscal year. We must also take such cost increases into consideration, but more significant than this issue is healthy sales growth. What matters is how we grow sales from those in 2019, and after

We now have all the pieces necessary to achieve our long-term vision. Likened to a jigsaw puzzle, the question of where we should start completing the puzzle is important. Kagome has only fit pieces into places next to already completed parts. This approach only allows for slow progress toward completing the puzzle. If we find a shiny piece, we should fit the piece even though it does not border the places already completed. This forms the core of highly profitable businesses. I believe that if we link the businesses we have now with these highly profitable businesses, everything will work out fine. In our view, future M&A is just one of the means, not a premise, for growth, considering growth until 2025. If there is a brilliant company that fits our jigsaw, we will flexibly respond, examining whether

through meticulous and bold business execution.

OurApproachonInvestment Our current Mid-Term Management Plan will see expanded capita l investment. However, th is investment is mainly to upgrade outdated facilities in Japan and is necessary for better production efficiency. Our target for return on investment is set at a payback period of four years for capital investment and IRR exceeding the hurdle rate for business investment. The hurdle rate is set at 10%, a combination of our WACC calculated at 4 to 5% and a risk premium. The hurdle rate also takes country risk into consideration. Whilst exceeding the rate is one standard, at the same time we also attach importance to the potential of business plans, and striking a balance is important. We are also considering adopting a policy on the allocation and prioritization of investments in property, plant and equipment, and intangible assets as well as adopting KPIs for measuring their impact and progress. Vital for this are management’s views on important issues (materiality). We are in the process of identifying important issues (materiality) and our Mid-Term Management Plan is being reviewed on a rolling basis every year. In the meantime, we will continue with the identification of important issues (materiality) toward 2020 and also organize our views on the allocation of investments to intangible assets.

UsesofFreeCashFlowandShareholderReturns

We are currently reviewing the way in which we use free cash flow and our views on shareholder returns. Over the three years of the Mid-Term Management Plan (2019-2021), we will make available for dividend the cash flows from operating activities less capital in-vestment. While maintaining stable dividends, we will also examine shifting to an approach that shows great-er awareness of the total return ratio, including examin-ing share buybacks if we have surplus free cash flow.

we complete our earnings structure reform that lags one year behind in the agri-business and international business, sales will grow and profits will follow suit. Accomplishing this is one of the issues that needs to be addressed in the current fiscal year. Importantly, the agri-business needs to make up for the first quarter and regain lost ground. We will do everything we can, including buying and selling tomatoes on the market, for example. In the international business, we are taking action to ensure that we attain the budget for the current fiscal year so as to turn overseas subsidiaries to profitability, while always preparing backup plans to take second and third steps just in case.

we partner with the company in the form of M&A or alliance and how the partnership will benefit each other. In addition, we have realized the importance of engagement through our IR activities. Listening to home truths from outside stops management from becoming complacent and enables us to see our true reflection in the mirror. The same holds true to engagement with External Directors. We have boosted our engagement activities out of a desire to share Kagome’s appeal with institutional investors as well as individual investors, who already rate us highly. One manifestation of the autonomy which Kagome values is that we are upfront. In the future, we intend to continue moving forward as an “open company” both externally and internally.


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As a result, ordinary income for the consolidated fiscal year under review decreased by 566 million yen (a decrease of 4.5%), to 12,051 million yen, compared with 12,618 million yen for the previous consolidated fiscal year. The ratio of ordinary income to net sales was 5.7%, a deterioration of 0.2 points from 5.9% for the previous consolidated fiscal year.

Extraordinarygainorloss Extraordinary gain for the consolidated fiscal year under review increased by 1,466 million yen, to 6,056 million yen, compared with 4,590 million yen for the previous consolidated fiscal year. We recorded a gain on sales of fixed assets of 1,482 million yen because, in the consolidated fiscal year under review, we sold the site of our Shizuoka plant and the site of our Komaki warehouse as part of efforts to improve corporate governance including asset efficiency. We also recorded a gain on sales of investment securities of 4,574 million yen as a result of the sale of shares including shares of Asahi Group Holdings, Ltd. and shares of Nissin Foods Holdings Co., Ltd. in line with our basic policy to dispose of and reduce cross-shareholdings of little significance. Extraordinary loss for the consolidated fiscal year under review increased by 581 million yen, to 2,179 million yen, compared with 1,598 mill ion yen for the previous consolidated fiscal year. Our subsidiary Kada Greenfarm Co., Ltd. severely suffered from Typhoons No. 20 and No. 21 in August and September 2018 and was dissolved with effect on November 30, 2018 based on the judgment that any resumption of its business in the future was impossible. As a result, we recorded a loss on disaster of 1,271 million yen in the consolidated fiscal year under review. Additionally, in our international business, a laggard in responding to environmental changes, we made a start on structural reforms, focusing on the seed business, and recorded business structure improvement expenses of 471 million yen, including the closure of unprofitable sales bases and the disposal of inventories based on a review of sales strategies.

Incometaxesandprofitattributabletoshareholdersofparent

Total income taxes for the consolidated fiscal year under review decreased by 311 million yen, to 4,921 million yen compared with 5,232 million yen for the previous consolidated fiscal year. The actual effective tax rate after application of deferred tax accounting was 30.9%, which edges the effective statutory tax rate in Japan, 30.7%, reflecting the impact of amortization of goodwill, among other factors. Profit attributable to shareholders of parent for the consolidated fiscal year under review after deducting profit attributable to non-controlling interests from net income increased by 1,426 million yen, to 11,527 million yen, compared with 10,100 million yen for the previous consolidated fiscal year. Accordingly, for the consolidated fiscal year under review, net sales were 209,865 million yen, down 2.0% year on year, operating income was 12,000 million yen, up 0.3% year on year, ordinary income was 12,051 mil l ion yen, down 4.5% year on year, and profit attributable to shareholders of parent was 11,527 million yen, up 14.1% year on year.

AnalysisofFinancialCondition

Assets Kagome’s total assets at the end of the consolidated fiscal year under review decreased by 2,124 million yen from the end of the previous consolidated fiscal year. Current assets increased by 7,653 million yen from the end of the previous consolidated fiscal year. This was due to an increase of 8,441 million yen in “cash and deposits” due mainly to the sale of investment securities. Fixed assets decreased by 9,778 million yen from the end of the previous consolidated fiscal year. “Property, plant and equipment” increased by 3,351 million yen from the end of the previous consolidated fiscal year.

2017201620152014

219,804195,737

208,885203,413

2018(FY)

193,612

2017201620152014

97,991

126,344124,566

105,853

2018(FY)

104,843

2018(FY)

2017201620152014

2.6ROA

ROE5.3

6.1

10.4

2.9

6.4

3.8 3.46.2

11.3

(Unit: Millions of Yen / %) (Unit: Millions of Yen / %) (Unit: Millions of Yen) (Unit: Millions of Yen) (Unit: %)(Unit: Millions of Yen)

OperatingIncome/OperatingIncometoNetSales

ProfitAttributabletoShareholdersofParent/ReturnonSales TotalAssets TotalNetAssetsNetSales

201620152014

202,534195,619

159,360

2017

214,210

2018(FY)

209,865

201620152014 2017

10,94611,968

6,723

4,328

5.4 5.6

3.42.7

2018(FY)

12,000

5.7

2017201620152014 2018(FY)

4.75.5

3.3

1.8

2.76,764

3,4414,366

10,100

11,527

Netsales Net sales decreased by 4,344 million yen (a decrease of 2.0%), to 209,865 million yen, compared with 214,210 million yen for the previous consolidated fiscal year. Net sales for the previous consolidated fiscal year included net sales of 5,951 million yen of Preferred Brands International, Inc., which was sold in the previous consolidated fiscal year, and we failed to achieve sufficient revenue growth to offset the net decrease in the net sales of Preferred Brands International, Inc. The domestic processed food business posted a sales increase of 83 million yen (an increase of 1.0%) year on year, reflecting strong sales in our core beverage business, including Yasai Seikatsu 100 Smoothie and tomato juice, and in our direct marketing business, which offset decreased sales of institutional and industrial consigned products. Meanwhile, our domestic agri-business and international business saw lower-than-expected growth due to the delayed response to environmental changes.

Costofsalesandgrossprofit The cost of sales for the consolidated fiscal year under review decreased by 2,521 million yen (a decrease of 2.1%), to 115,216 million yen, compared with 117,738 million yen for the previous consolidated fiscal year. The cost of sales ratio improved by 0.1 points, from 55.0% in the previous consolidated fiscal year to 54.9%. The cost of sales ratio worsened owing to a variety of factors: defects with manufacturing equipment newly introduced at Kagome Inc. (in the U.S.), a major subsidiary in the international business; a decline in the selling price of tomato paste at Holding da Industria Transformadora do Tomate, SGPS S.A. (in Portugal) due to sluggish market conditions; and detractors in the domestic agri-business such as weaker market prices throughout the first half, the peak period for our mainstay fresh tomatoes, than in the previous consolidated fiscal year as well as a slow response to market oversupply. However, the deteriorated cost of sales ratio was offset by the significant contribution of lower costs in the domestic processed food business,

and consequently the cost of sales ratio improved from the previous consolidated fiscal year. As a result, gross profit for the consolidated fiscal year under review was 94,649 million yen, decreasing 1,823 million yen (a decrease of 1.9%) compared with 96,472 million yen for the previous consolidated fiscal year.

Selling,generalandadministrativeexpensesandoperatingincome

Selling, general and administrative expenses for the consolidated fiscal year under review decreased by 1,854 million yen (a decrease of 2.2%), to 82,648 million yen, compared with 84,503 million yen for the previous consolidated fiscal year. The ratio of selling, general and administrative expenses to net sales was 39.4%, unchanged from the previous consolidated fiscal year, reflecting the effective use of sales promotion costs, against a backdrop of strategic investment in advertising expenses and continued increase in freight costs and storage charges in Japan. As a result, operating income for the consolidated fiscal year under review increased by 31 million yen (an increase of 0.3%), to 12,000 million yen, compared with 11,968 million yen for the previous consolidated fiscal year, achieving a record high for third consecutive year. The ratio of operating income to net sales was 5.7%, improved by 0.1 points from 5.6% in the previous consolidated fiscal year.

Otherincomeorlossandordinaryincome Other income for the consolidated year under review decreased by 505 million yen, to 1,053 million yen, compared with 1,559 mill ion yen for the previous consolidated fiscal year. This was mainly because, in the previous consolidated fiscal year, we recorded a valuation gain of 391 million yen due to fluctuation in the market value of company-owned derivatives (compared with a valuation loss of 28 million yen in the consolidated fiscal year under review). Other expenses for the consolidated fiscal year under review increased by 92 million yen, to 1,002 million yen, compared with 910 mil l ion yen for the previous consolidated fiscal year.

OperatingResultsandFinancialAnalysis(FiscalYear2018)

ConditionsofEarningsandProfits

ROA(ReturnonAssets)/ROE(ReturnonEquity)



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m_015_0116687911906.indd 70-71 2019/09/02 16:44:45

AsofDec. 31, 2017

AsofDec. 31, 2018

AsofDec. 31, 2018

Assets

Current assets:

Cash and deposits 22,150 30,591 275,595

Notes and accounts receivable 36,042 35,893 323,360

Merchandise and finished goods 21,143 19,705 177,523

Work in process 919 896 8,072

Raw material and supplies 19,636 20,674 186,252

Deferred tax assets 506 1,014 9,135

Derivatives 2,568 195 1,757

Other current assets 7,051 8,631 77,757

Allowance for doubtful accounts (351) (281) (2,532)

Total current assets 109,667 117,321 1,056,946

Fixed assets:

Property, plant and equipment:

Buildings and structures 43,867 44,482

Accumulated depreciation (25,042) (24,984)

Buildings and structures, net 18,824 19,497 175,649

Machinery, equipment and vehicles 70,864 73,364


Machinery, equipment and vehicles, net 17,821 19,736 177,802

Tools and furniture 6,276 6,190


Tools and furniture, net 942 1,081 9,739

Land 12,874 11,532 103,892

Lease assets 3,369 3,384


Lease assets, net 851 817 7,360

Construction in progress 1,935 3,937 35,468

Property, plant and equipment, net 53,250 56,602 509,928

Intangible assets:

Goodwill 503 55 495

Software 1,426 1,872 16,865

Other intangible assets 266 264 2,378

Total intangible assets 2,196 2,192 19,748

Investments and other assets:

Investment securities 22,364 10,413 93,811

Long-term loans receivable 1,581 1,238 11,153

Deferred tax assets 95 132 1,189

Other assets 6,663 5,783 52,099

Allowance for doubtful accounts (82) (71) (640)

Total investments and other assets 30,621 17,496 157,622

Total fixed assets 86,069 76,291 687,306

Total assets 195,737 193,612 1,744,252

ConsolidatedBalanceSheets

AsofDec. 31, 2017

AsofDec. 31, 2018

AsofDec. 31, 2018

Liabilities

Current liabilities:

Notes and accounts payable 16,554 16,472 148,396

Short-term borrowings 21,218 22,306 200,955

Current portion of long-term borrowings 1,447 1,719 15,486

Other payable 12,039 13,166 118,613

Income taxes payable 3,918 3,620 32,613

Deferred tax liabilities 14 13 117

Accrued bonuses for employees 1,251 1,316 11,856

Accrued bonuses for directors 105 79 712

Derivatives liabilities 2 4 36

Other current liabilities 3,158 3,862 34,793

Total current liabilities 59,710 62,563 563,631

Long-term liabilities:

Long-term borrowings 14,154 12,910 116,306

Deferred tax liabilities 3,882 1,079 9,721

Net defined benefit liability 5,045 5,454 49,135

Provision for loss on guarantees 190 185 1,667

Other 6,900 6,576 59,243

Total long-term liabilities 30,173 26,206 236,090

Total liabilities 89,883 88,769 799,721

Net Assets

Shareholder's equity:

Common stock 19,985 19,985 180,045

Capital surplus 22,362 22,362 201,459

Retained earnings 74,303 83,162 749,207

Treasury stock (26,985) (26,739) (240,892)

Total shareholder's equity 89,665 98,771 889,829

Accumulated other comprehensive income:

Unrealized gain on available-for-sale securities 8,971 2,892 26,054

Deferred gains or losses on derivatives under hedge accounting 2,420 457 4,117

Foreign currency translation adjustments 1,754 606 5,459

Remeasurements of defined benefit plans (864) (995) (8,964)

Total accumulated other comprehensive income 12,283 2,961 26,676

Subscription rights to shares 106 202 1,820

Non-controlling interests 3,798 2,908 26,198

Total net assets 105,853 104,843 944,532

Total liabilities and net assets 195,737 193,612 1,744,252

Millions of Yen Millions of YenThousands ofU.S. dollars

Thousands ofU.S. dollars

ConsolidatedFinancialStatements One major source of increase was 11,366 million yen in fixed investments due mainly to the renewal of Kagome’s manufacturing equipment. Main decreases were depreciation and amortization of 4,775 million yen, sale of real estate of 1,032 million yen, and impairment loss of 844 million yen. “Investments and other assets” decreased by 13,125 million yen from the end of the previous consolidated fiscal year due mainly to the sale of investment securities.

Liabilities Liabilities decreased by 1,114 million yen from the end of the previous consolidated fiscal year. This resulted from a 2,802 million yen decrease in deferred tax liabilities due mainly to the sale of investment securities, offsetting a 1,514 million yen increase in “Other payable” (including long-term accounts payable). Net assets decreased by 1,009 million yen from the end of the previous consolidated fiscal year. This was attributable to a decrease of 9,321 million yen in “Accumulated other comprehensive income,” reflecting the sale and market value decline of investment securities and yen appreciation, which offset an increase of 9,105 million yen in shareholder’s equity resulting from an increase of 11,527 million yen in “Retained earnings” due to “Profit attributable to shareholders of parent” and a decrease of 2,668 million yen due to distribution of surplus money. As a result, the shareholder equity ratio was 52.5% and net assets per share was 1,146.85 yen.

AnalysisofStatusofConsolidatedCashFlows Cash and cash equivalents as of December 31, 2018 amounted to 30,112 million yen, an increase of 8,562 million yen compared to December 31, 2017. The status of respective cash flows is as follows: Net cash provided by operating activities was 10,130 million yen (compared to net cash provided of 16,598 million yen for the previous fiscal year). This mainly reflects profit before income taxes of 15,928 million yen, depreciation and amortization of 5,194 million yen (the above were net cash inflows), gain on sales of investment securities of 4,517 million yen, gain on sales and disposal of fixed assets of 1,254 million yen, and income taxes paid of 5,500 million yen (the above were net cash outflows). Net cash used in investing activities was 299 million yen (compared to net cash provided of 17,271 million yen for the previous fiscal year). This was mainly attributable to inflows of 8,962 million yen due to sales of investment securities and 2,331 million yen due to the sales of fixed assets and outflows of 10,718 million yen due to the acquisition of fixed assets and 801 mil l ion yen due to purchases of investment securities. Net cash used in financing activities was 1,083 million yen (compared to net cash used of 40,761 million yen for the previous fiscal year). Major factors were inflows of 7,726 million yen due to long-term borrowings and 2,301 million yen due to

increase (decrease) in short-term borrowings and outflows of 8,497 million yen due to repayments of long-term borrowings and 2,668 million yen due to dividends paid.

CapitalResourcesandCapitalLiquidity The Kagome Group’s basic policy is to ensure the capital liquidity and capital resources needed for its business operations. The Group’s main capital resources are cash flows from operating activities and loans from financial institutions. Long-term funding demand for capital investment, etc. is met mainly through the Group’s own funds and long-term borrowings from financial institutions whilst short-term funding needs for working capital, etc. are met mainly through the Group’s own funds. As of December 31, 2018, cash and cash equivalents amounted to 30,112 million yen and interest-bearing debt amounted to 37,302 million yen.

OutlookfortheFiscalYearEndingDecember31,2019

Conditions in the domestic food industry are expected to remain uncertain in 2019, with contraction of the market due to population decline, higher consumption tax, rising prices for imported raw materials and increased logistics expenses, and changes in the global situation. In this environment, Kagome launched a three-year Mid-term Management Plan starting from the fiscal year ending December 31, 2019, aiming to “become a strong company capable of sustainable growth, using food as a means of resolving social issues” and to realize its long-term vision of transforming from a “tomato company” to a “vegetable company.”

Revenue(million yen)

Note 2


(million yen)Note 3

Operating income

(million yen)

Profit attributable to owners of

parent(million yen)

Basic earnings per

share(yen)

Fiscal year ending

December 31, 2019 (Forecast)

189,000 12,600 13,600 9,500 107.10

Note 1. The above consolidated financial results forecast has been prepared in accordance with

International Financial Reporting Standards (IFRS) because Kagome decided to voluntarily

adopt IFRS starting from the fiscal year ending December 31, 2019.

Note 2. Revenue is presented net of sales rebates and discounts, which were previously presented in

selling, general and administrative expenses.

Note 3. Core operating income is a profit index that measures constant business performance by

deducting cost of sales and selling, general and administrative expenses from revenue plus

share of loss (profit) of entities accounted for using equity method.



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ConsolidatedStatementsofIncome ConsolidatedStatementsofCashFlows

ConsolidatedStatementsofComprehensiveIncome

Fiscal year endedDecember 31, 2017



Net sales 214,210 209,865 1,890,676 Cost of sales 117,738 115,216 1,037,982 Gross profit 96,472 94,649 852,694 Selling, general and administrative expenses 84,503 82,648 744,577 Operating income 11,968 12,000 108,108 Other income

Interest income 409 258 2,324 Dividend income 341 360 3,243 Gain on valuation of derivatives 391 - -Other 417 434 3,910 Total other income 1,559 1,053 9,486

Other expenses

Interest expense 477 410 3,694 Share of loss of entities accounted for using equity method 44 72 649 Foreign exchange losses 41 88 793 Other 346 430 3,874 Total other expenses 910 1,002 9,027

Ordinary income 12,618 12,051 108,568 Extraordinary gain

Gain on sales of fixed assets 354 1,482 13,351 Gain on sales of investment securities 1,721 4,574 41,207 Gain on sales of shares of subsidiaries and associates 2,171 - -Gain on transfer of business 330 - -Compensation income for expropriation 11 - -Total extraordinary gain 4,590 6,056 54,559

Extraordinary loss

Loss on disposal of non-current assets 195 228 2,054 Impairment loss 1,337 136 1,225 Loss on disaster - 1,271 11,450 Business structure improvement expenses - 471 4,243 Other 64 71 640 Total extraordinary loss 1,598 2,179 19,631

Profit before income taxes 15,610 15,928 143,495 Income taxes - current 4,688 4,990 44,955 Income taxes - deferred 544 (69) (622) Total income taxes 5,232 4,921 44,333 Net income 10,377 11,006 99,153 (Breakdown)

Profit attributable to shareholders of parent 10,100 11,527 103,847 Profit (loss) attributable to non-controlling interests 276 (521) (4,694)




Other comprehensive income

Unrealized gain on available-for-sale securities 2,484 (6,079) (54,766)Deferred gains or losses on derivatives under hedge accounting (1,850) (1,975) (17,793)Foreign currency translation adjustments 656 (1,430) (12,883)Remeasurements of defined benefit plans 435 (131) (1,180)Share of other comprehensive income of an affiliate by the equity method (2) 0 0 Total other comprehensive income 1,723 (9,617) (86,640)

Comprehensive income 12,100 1,389 12,514 (Breakdown)

Comprehensive income attributable to shareholders of parent 11,621 2,206 19,874 Comprehensive income attributable to non-controlling interests 479 (817) (7,360)




Cash flows from operating activities:

Profit before income taxes 15,610 15,928 143,495 Depreciation and amortization 5,813 5,194 46,793 Impairment loss 1,337 844 7,604 Amortization of goodwill 722 419 3,775 Interest and dividend income (750) (619) (5,577)Interest expense 477 410 3,694 Increase (decrease) in accrued bonuses 18 42 378 Increase (decrease) in other provisions 93 (71) (640)Increase (decrease) in net defined benefit liability 242 218 1,964 Share of loss (profit) of entities accounted for using equity method 44 96 865 Loss (gain) on sales of investment securities (1,721) (4,517) (40,694)Loss (gain) on sales of shares of subsidiaries and associates (2,171) - -Loss (gain) on sales and disposal of fixed assets-net (158) (1,254) (11,297)Loss (gain) on transfer of business (330) - -Compensation income for expropriation (11) - -Decrease (increase) in notes and accounts receivable (2,993) (192) (1,730)Decrease (increase) in inventories (1,876) (597) (5,378)Decrease (increase) in accounts receivable-other (974) (501) (4,514)Increase (decrease) in notes and accounts payable 3,113 (46) (414)Increase (decrease) in accounts payable-other 1,203 80 721 Proceeds from lease and guarantee deposits received 615 - -Decrease (increase) in other current assets (260) (269) (2,423)Increase (decrease) in other current liabilities (255) 321 2,892 Other – Increase (decrease)-net (51) (9) (81)Subtotal 17,738 15,479 139,450 Cash received from interest and dividend income 772 555 5,000 Cash paid for interest expense (449) (404) (3,640)Income taxes paid (1,474) (5,500) (49,550)Proceeds from compensation for expropriation 11 - -Net cash provided by (used in) operating activities 16,598 10,130 91,261

Cash flows from investing activities:

Disbursement for time deposits (96) (20) (180)Proceeds from withdrawal of time deposits 10,122 115 1,036 Purchases of marketable and investment securities (682) (801) (7,216)Proceeds from sales and redemption of securities 2,938 8,962 80,739 Acquisition of fixed assets (9,202) (10,718) (96,559)Proceeds from sales of fixed assets 1,830 2,331 21,000 Collection of loans receivable 263 65 586 Proceeds from transfer of business 868 - -Purchase of shares and capital of subsidiaries resulting in change in scope of consolidation (90) - -Purchase of shares of subsidiaries and associates (48) (121) (1,090)Proceeds from sales of shares of subsidiaries resulting in change in scope of consolidation 11,246 - -Other – Increase (decrease)-net 122 (112) (1,009)Net cash provided by (used in) investing activities: 17,271 (299) (2,694)

Cash flows from financing activities:

Increase (decrease) in short-term borrowings (17,918) 2,301 20,730 Proceeds from long-term borrowings 8,634 7,726 69,604 Repayments of long-term borrowings (29,277) (8,497) (76,550)Repayments of finance lease obligations (123) (117) (1,054)Dividends paid (2,180) (2,668) (24,036)Proceeds from share issuance to non-controlling shareholders 0 0 0 Dividends paid to non-controlling interests (69) (74) (667)Decrease (increase) in treasury shares 173 246 2,216 Other 0 - -Net cash provided by (used in) financing activities (40,761) (1,083) (9,757)

Foreign translation adjustment on cash and cash equivalents 377 (185) (1,667)Net increase (decrease) in cash and cash equivalents (6,513) 8,562 77,135 Cash and cash equivalents at beginning of period 28,313 21,550 194,144 Increase (decrease) in cash and cash equivalents resulting from change of scope of consolidation (249) - -Cash and cash equivalents at end of period 21,550 30,112 271,279

Millions of Yen Thousands of U.S. dollars Millions of Yen Thousands of U.S. dollars

Millions of Yen Thousands of U.S. dollars


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Company Information

CompanyOverview

PlacesofBusinessandGroupCompanies

Founded 1899

Established 1949

Head Office 3-14-15, Nishiki, Naka-ku, Nagoya, AichiPhone: +81-52-951-3571 (Main) Fax: +81-52-968-2510

Tokyo Head Office Nihonbashi-hamacho F-Tower, 3-21-1 Nihonbashi-hamacho, Chuo-ku, TokyoPhone: +81-3-5623-8501 (Main) Fax: +81-3-5623-2331

Capital 19,985 million yen

Number of Employees 2,504 (consolidated)

Places of BusinessHead Office, Tokyo Head Office, 1 division office, 8 branches, 6 plants, Innovation Division

Description of Business Production and sales of food seasonings, preserved foods, beverages, and other food products; purchasing, production, and sales of seedlings, fruits, and vegetables

Places of Business

Main Group companies

Domestic Subsidiaries and Associates

• Hibikinada Greenfarm Co., Ltd. (Kitakyushu City, Fukuoka)

• Iwaki Onahama Greenfarm Co., Ltd. (Iwaki City, Fukushima)

• Kagome Axis Co., Ltd. (Nagoya City, Aichi)

• F-LINE Corp. (Chuo-ku, Tokyo)

Overseas Subsidiaries and Associates

• Kagome Inc. (California, U.S.A.)

• Ingomar Packing Company, LLC (California, U.S.A.)

• United Genetics Holdings LLC (California, U.S.A.)

• Holding da Industria Transformadora do Tomate, SGPS S.A. (HIT) (Palmela City, Portugal)

• Vegitalia S.p.A. (Calabria, Italy)

• Kagome Australia Pty Ltd. (Victoria, Australia)

• Taiwan Kagome Co., Ltd. (Tainan City, Taiwan)

Head Office

Tokyo Head Office

Head Office

Tokyo Head Office

Innovation Division

Tokyo Laboratory

Plants • Ueno Plant

• Kozakai Plant

• Fujimi Plant

• Nasu Plant

• Ibaraki Plant

• Komaki Plant

• Hokkaido Branch

• Tohoku Branch

• Kita-Tohoku Business Office

• Tokyo Branch

• Kanagawa Branch

• Kanto Branch

• Nagoya Branch

• Shizuoka Business Office

Business Office • Hokuriku Business Office

• Osaka Branch

• Chu-Shikoku Branch

• Okayama Business Office

• Shikoku Business Office

• Kyusyu Branch

• Okinawa Business Office

0

50

100

150

200

250

300

350

400

450

1999/12 2000/12 2001/12 2002/12 2003/12 2004/12 2005/12 2006/12 2007/12 2008/12 2009/12 2010/12 2011/12 2012/12 2013/12 2014/12 2015/12 2016/12 2018/122017/12

Kagome’s stock priceTOPIX

Financial institutions41 (0.02%)

Foreign investors280 (0.15%)

Foreign investors7,004 thousand (7.03%)

Other domestic institutions505 (0.27%)

Other domestic institutions10,551 thousand (10.59%)

Financial instruments business operators 37 (0.02%)

Treasury shares10,658 thousand (10.70%)

Financial instruments business operators863 thousand (0.87%)

Individuals and others186,095 (99.54%)

Individuals and others53,749 thousand(53.96%)

Treasury shares1 (0.00%)

Financial institutions16,789 thousand (16.85%)

Financial institutions41 (0.02%)

Foreign investors280 (0.15%)

Foreign investors7,004 thousand (7.03%)

Other domestic institutions505 (0.27%)

Other domestic institutions10,551 thousand (10.59%)

Financial instruments business operators 37 (0.02%)

Treasury shares10,658 thousand (10.70%)

Financial instruments business operators863 thousand (0.87%)

Individuals and others186,095 (99.54%)

Individuals and others53,749 thousand(53.96%)

Treasury shares1 (0.00%)

Financial institutions16,789 thousand (16.85%)

Status of Shares

Major Shareholders

Stock Price Trend

Changes in Trading Volume (in yen)

Status of Share Distribution

Number of shares outstanding 99,616,944 shares

(Note) 1.Total number of authorized shares 279,150,000 shares

rightrig2. Number of shares per unit 100 shares

Number of shareholders 186,959

Names of Major Shareholders

Capital Contribution to the Company

Number of Shares Held (thousand

shares)

Shareholding Ratio (%)

Japan Trustee Services Bank, Ltd. (account in trust) 9,029 10.14

The Master Trust Bank of Japan, Ltd. (account in trust) 5,351 6.01

Dynapac Co., Ltd. 4,399 4.94

Nissin Foods Holdings Co., Ltd. 1,559 1.75

Toshichika Kanie 1,412 1.58

JP MORGAN CHASE BANK 385151 1,251 1.40

Eikichi Kanie 1,110 1.24

Kagome Business Association 975 1.09

STATE STREET BANK WEST CLIENT - TREATY 505234 962 1.08

Shinichi Sano 957 1.07

*The shareholding ratios were calculated without treasury shares (10,658 thousand shares). The treasury shares do not include 252 thousand shares of the Company owned by The Master Trust Bank of Japan, Ltd. (account in trust), which was established in the introduction of the employee incentive plan, “Employee Stock Ownership Plan (ESOP) Trust.”

Distribution by Shareholder Type

Distribution by Number of Shares

*Month-end stock prices relative to the stock price as of December 31, 1999, being 100.*TSR is a total return assuming that dividends are re-invested at the closing price as of March 31, 2014, which is the end of the fiscal year in question.

Trends of the Company’s stock price and Tokyo Stock Price Index (TOPIX)

FY2014 FY2015 FY2016 FY2017FY2012FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2013

12,000

8,000

4,000

0

Trading volume (1,000 shares)

3 3 3 3 3 3 3 3 3 1212 12 12FY2018

12

TSR (Total Shareholder Return)

Holding period 1 year 3 years 5 years

Kagome 105% 171% 172%

TOPIX (incl. dividend) 110% 124% 127%


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76 KAGOME INTEGRATED REPORT 2019

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2019

Integrated Report

Head Office

Tokyo Head Office

3-14-15, Nishiki, Naka-ku, Nagoya, Aichi 460-0003, Japan

Tel: +81-52-951-3571

Nihonbashi-hamacho F-Tower, 3-21-1 Nihonbashi-hamacho, Chuo-ku, Tokyo 103-8461, Japan

Tel: +81-3-5623-8501

We use environmentally friendly FSC® certified paper and vegetable oil-based inks

Paper fromresponsible sources

MIX


Kagome Co., Ltd.

Kagom

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Integrated Report 2019

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Documents

Integrated Report€¦ · Integrated Report 2019 Editorial Policy Since the release of its Environmental Report for fiscal 1999, the Kagome Group has continuously reported to our